M/s. Softlink International Pvt. Ltd.,, Pune v. ACIT Cir.-6,, Pune

ITA 955/PUN/2008 | 2000-2001
Pronouncement Date: 14-02-2012 | Result: Dismissed

Appeal Details

RSA Number 95524514 RSA 2008
Assessee PAN MJUNE2000O
Bench Pune
Appeal Number ITA 955/PUN/2008
Duration Of Justice 3 year(s) 7 month(s) 7 day(s)
Appellant M/s. Softlink International Pvt. Ltd.,, Pune
Respondent ACIT Cir.-6,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 14-02-2012
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 14-02-2012
Date Of Final Hearing 16-12-2011
Next Hearing Date 16-12-2011
Assessment Year 2000-2001
Appeal Filed On 07-07-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI I.C. SUDHIR JUDICIAL MEMBER AND D.KARUNAKARA RAO ACCOUNTANT MEMBER ITA NOS. 417 TO 419/PN/2008 & 955 TO 956/PN/2008 (ASSTT. YEARS:2000-01 TO 2005-06) M/S. SOFTLINK INTERNATI ONAL PVT. LTD. ... APPELLANT 2 ANAND PARK AUNDH PUNE 411 007 PAN : AAAC 15704J V. ASST CIT CIRCLE -6 RESPONDENT PUNE C.O. NOS. 77 TO 81/PN/ 2011 (ARISING FROM ITA NOS. 955 TO 956/PN/2008 & 417 TO 419/PN/2008) (A.YS. 2000-01 TO 2005-06) ASST. COMMISSIONER OF INCOME TAX CROSS OBJECTOR CIRCLE 6 PUNE V. M/S. SOFTLINK INTERNAT IONAL PVT. LTD. ... RESPONDE NT 2 ANAND PARK AUNDH PUNE 411 007 PAN : AAAC 15704J ASSESSEE BY : SHRI S.U. PATHAK DEPARTMENT BY : SHRI S.K. AMBASTHA\ DATE OF HEARING : 16.12.2011 DATE OF PRONOUNCEMENT: 14 .02.2011 ORDER PER I.C. SUDHIR JM IN THE APPEALS PREFERRED BY THE ASSESSEE THE GROUN DS INVOLVE THE FOLLOWING ISSUES : IN THE A.YS. 2000-01 AND 2001-02 THE ASSESSEE HAS RAISED THE ISSUE OF VALIDITY OF REASSESSMENT (ISSUE NO. 1). ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 2 IN ALL THE APPEALS ARE COMMON ISSUE HAS BEEN RAISE D AS TO WHETHER LD CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DEDUCTION U/S. 10A IN RESPECT OF PROFITS OF THE STP UNIT (ISSUE NO. 2) 2. IN A.YS. 2001-02 AND 2002-03 THE ASSESSEE HAS R AISED AN ISSUE AS TO WHETHER THE LD CIT(A) HAS ERRED IN HOLDING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY ON THE DEVELOPMENT OF THE PRODUCT S IMAGING AND PANACEA WAS A CAPITAL EXPENDITURE AND WAS NOT ALLOWABLE AS A REVENUE EXPENDITURE (ISSUE NO.3) ? AN ALTERNATIVE GROUND WITHOUT PREJUDICE TO ABOVE CON TENDING THAT THE EXPENDITURE INCURRED WAS IN THE NATURE OF RESEARCH & DEVELOPMENT AND THEREFORE ALLOWABLE U/S. 35 OF THE ACT HAS ALSO BEEN RAISED. 3. IN A.Y. 2003-04 ISSUE REGARDING ELIGIBILITY OF THE CLAIMED PRODUCT DEVELOPMENT EXPENSES HAS ALSO BEEN RAISED. (ISSUE N O.4) ISSUE NO.1 4. IN THE APPEALS FOR A.Y. 2000-01 & 2001-02 THE ASSESSEE HAS ALSO RAISED GROUND NO. 1 QUESTIONING THE VALIDITY OF THE RE-OP ENING ON THE BASIS THAT THE RE- OPENING WAS BASED ON A MERE CHANGE OF OPINION. IN THIS REGARD RELIANCE HAS BEEN PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LTD. 320 ITR 561 (SC). 5. THE LD. D.R. ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE. ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 3 6. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW WE FIND THAT THE COMPANY WAS REGISTERED WITH STP AUTHORITIES ON 29.3 .2000. IT WAS CLAIMED THAT AFTER MARCH 2000 THE STP UNIT PRODUCED A NEW SOFTW ARE HCP DICOM NET THE SALE OF WHICH WAS FROM MAHY 2000. IN SURVEY CONDUCTED BY T HE A.O ON 22.3.2005 DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2002- 03 IT CAME TO THE NOTICE OF THE A.O THAT THE NEW UNIT I.E. STP DIVISION HAD NOT PRO DUCED OR MANUFACTURED THE COMPUTER SOFTWARE REQUIRED AS PER PROVISIONS OF SEC . 10A. THE A.O WAS NOT SATISFIED WITH THE EXPLANATION FURNISHED BY THE ASS ESSEE AND THUS INITIATED THE RE- OPENING PROCEEDINGS AND FRAMED ASSESSMENT U/S. 147 R.W. 143(3) DURING THE A.YS. IN QUESTION. ON PERUSAL OF THE ASSESSMENT ORDER W E FIND THAT THERE WAS SUFFICIENT MATERIAL BEFORE THE A.O TO FORM REASONS TO BELIEF THAT THERE WAS ESCAPEMENT OF ASSESSABLE INCOME REGARDING CLAIMED DEDUCTION U/S. 10A IN THE STP UNIT. REFERRING PROFIT & LOSS ACCOUNT AND COMPUTATION OF INCOME TH E A.O OBSERVED THAT THE COMPANY WAS SHOWING PROFIT IN STP DIVISION AND AFTE R CLAIMING THE EXEMPTION U/S. 10A THE ENTIRE INCOME ON SALE OF EXPORT WAS EXEMPT WHEREAS THERE WAS LOSS IN THE MAIN DIVISION WHICH WAS FURTHER ENHANCED BY PRODU CT DEVELOPMENT EXPENSES DEBITED TO MAIN DIVISION. WE THUS FIND THERE WAS S UFFICIENT MATERIAL TO INITIATE RE- OPENING PROCEEDINGS IN THE PRESENT CASE. THE LD CI T(A) WAS THUS JUSTIFIED IN UPHOLDING THE VALIDITY OF RE-OPENING PROCEEDINGS QU ESTIONED BY THE ASSESSEE BEFORE HIM. THE SAME IS UPHELD. GROUND NO. 1 IN THESE AP PEALS IS THUS REJECTED. ISSUE NO. 2 7. THE RELEVANT FACTS ARE THAT THE ASSESSEE COMPANY HAS BEEN DEALING IN DEVELOPMENT OF SOFTWARE AND WAS INCORPORATED ON 24. 1.1997 IN THE NAME OF INSYST SOFT LINK PRIVATE LTD. WHICH WAS LATER ON CHANGED TO THE PRESENT NAME IN JANUARY 1999. THE COMPANY DEVELOPED SOFTWARE PRODUCTS PERT AINING TO MEDICAL FIELD IN THE NAME OF HEART CARE PLUS AND HCP DICOM VIEWER. THE VARIOUS PRODUCTS DEVELOPED ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 4 BY THE COMPANY WERE SOLD IN INDIA UNDER THE HEAD D OMESTIC SALES AND THE EXPORTS OF THESE PRODUCTS THE COMPANY WAS CLAIMING DEDUCTION U/S. 80 HHE OF THE ACT. THE COMPANY GOT REGISTERED AS A STP UNIT ON 28.3.2000 AND CLAIMED THAT NOW IT HAS TWO DIVISIONS I.E. OLD DIVISION WHICH WAS EX ISTING EARLIER WAS NAMED AS MAIN DIVISION. THE NEW DIVISION WAS NAMED AS STP DIVISIO N WHICH CAME INTO BEING ON 28.3.2000. 8. DURING THE ENQUIRIES THE A.O FOUND THAT IN THE FINANCIAL YEAR 1999-2000 I.E. FROM 1.4.1999 TO 31 ST MARCH 20000 THE COMPANY SHOWED DOMESTIC SALES IN THE MAIN DIVISION AND EXPORT SALES IN THE STP DIVISION. AS THE STP DIVISION HAD COME INTO EXISTENCE ONLY ON 28.3.2000 AND THE COMPANY SHOWED SALES OF DEVELOPMENT OF SOFTWARE FOR INVUE SOFTWARE INC USA AND DECOS SOFT WARE ENGINEERING NETHERLAND FOR AN AMOUNT OF RS. 5 11 530/-. IN STP DIVISION THE A.O. HAD FIRST DEEMED AS TO WHETHER THE SOFTWARE DEVELOPMENT WORK WAS DONE BY THE MAIN DIVISION FOR IN A SPAN OF 2 DAYS IT WAS IMPOSSIBLE FOR THE COMPANY T O DEVELOP AND EXPORT THE SOFTWARE WITHOUT ANY EMPLOYEES COMPUTERS AND INFRA STRUCTURE. THE A.O FOUND THAT BEFORE 28.3.2000 THE MAIN DIVISION WAS THE SOFTWA RE FOR INVUE SOFTWARE INC. USA AND DECOS SOFTWARE ENGINEERING NETHERLAND AND THE EXPORT AND SALES WERE SHOWN IN OLD DIVISIONS. BUT THE A.O ON ENQUIRY FOUND TH AT THE OLD DIVISION AND THE NEW DIVISION WERE SHOWING SALE OF COMMON PRODUCTS HCP DICOM NET IN F.Y. 2000-01 & 2001-02. 9. THE A.O. OBSERVED FURTHER THAT AFTER THE ESTABL ISHMENT OF THE NEW PRODUCT THE PROFITS OF MAN DIVISION HAD SUBSTANTIALLY REDUC ED AND THE PROFITS OF THE STP DIVISION WHERE THE INCOME WAS EXEMPT HAD ENORMOUSLY INCREASE. HE NOTED FURTHER THAT AFTER CLAIMING EXEMPTION U/S. 10A THE ENTIRE INCOME FROM SALE OF EXPORT WAS EXEMPT WHILE THERE WAS LOSS IN THE MAIN DIVISION W HICH WAS FURTHER ENHANCED BY PRODUCT DEVELOPMENT EXPENSES. ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 5 10. ON EXAMINATION OF ACCOUNTS OF BOTH THE DIVISION S THE A.O. OBSERVED THAT IN THE STP DIVISIONS THERE WERE EXPORT SALES FROM JU NE 2000 OF A PRODUCT NAMED HCP DICOM NET. THE EXPENDITURE FOR DEVELOPMENT OF THE PRODUCT HCP DICOM VIEWER WAS DEBITED IN OLD DIVISION. THE A.O. OBSERVED THAT TH E HCL DICOM VIEWER WAS ADMITTEDLY IN THE MAIN DIVISION EARLIER AND SOLD FR OM JULY 1999. THE HCP DICOM VIEWER WHICH COULD VIEW THE DATA FROM CD BEING REVI EWING OF ANGIOGRAM I.E. WHERE THE DYE IS INJECTED AN X-RAY OF THE HEART IS TAKEN AS TO THE FUNCTIONING OF THE HEART AND SUCH CD WOULD BE VIEWED ON A STANDARD WINDOW PC . TILL 27.3.2000 THE COMPANY WAS CONTINUOUSLY ENGAGED IN THE IMPROVEMENT OF THE SOFTWARE WHICH WAS EVIDENCED BY THE EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT OF MAIN DIVISION. THE PURPOSE OF IMPROVEMENT WAS THAT THE SOFTWARE PROJE CT SHOULD NOT ONLY BE ABLE TO VIEW THE DATA FROM CD BUT ALSO EXTERNAL SOURCES LIK E CATHLAB BEING A MACHINE USED DURING OPERATION BY IMPORTING DATA FROM EXTERNAL SO URCES. ACCORDING TO THE A.O THE FUNCTIONALITY OF THE SOFTWARE WAS THE SAME IT HAD TO BE VIEWED DATA AND THEREFORE IT WAS HELD BY HIM THAT DICOM NET WAS ONLY AND IMPR OVED VERSION OF THE DICOM VIEWER WHICH WAS DEVELOPED BY MAIN DIVISION OF THE COMPANY. THE A.O. THEREFORE MADE FURTHER ENQUIRES AND EXAMINED AS TO WHETHER ST P DIVISION HAD ANY ACTUAL PROFITS AND WHETHER THE LOSS OF MAIN DIVISION WAS G ENUINE AND FURTHER AS TO WHETHER THE CLAIM OF EXEMPTION U/S 10A WAS CORRECTLY MADE. THE A.O FOUND THAT THE ENTIRE EXPENDITURE PERTAINING TO DEVELOPMENT OF HCP DICOM VIEWER AND HCP DICON NET WAS VIEWED IN THE MAIN DIVISION WHEREAS THE STP DIV ISION ONLY THE SALES OF HCP DICOM NET WERE SHOWN. THE FIRST SALE OF HCP DICOM NET WAS IN MAY 2000. THE A.O. ALSO HELD THAT THE STP DIVISION ON ITS OWN COU LD NOT DEVELOP THE PRODUCT HCP DICOM NET FROM 28.3.2000 TO 28.5.2000. 11. A SURVEY WAS CONDUCTED U/S. 133A OF THE ACT ON 23.2.2005 WHEREIN STATEMENTS OF SHRI. PRAKASH KAMAT THE MAIN PERSON ; SHRI VISHAL KHULE ONE OF THE SOFTWARE ENGINEERS WORKING ON THE PRODUCT AND MS. P OORNIMA KULKARNI ANOTHER ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 6 SOFTWARE ENGINEER WERE RECORDED. THE A.O FOUND THA T THE EMPLOYEES CONFIRMED THAT THEY WERE STILL WORKING ON IMPROVEMENT OF DIC OM VIEWER AND DICOM NET EVEN IN 2005. IT WAS ALSO CONFIRMED THAT WITHOUT THE V IEWER AND PROCESSING COMPONENT HANDLED BY DICOM VIEWER THE REMAINING PRODUCT IS NOT SUSTAINABLE AND IS OF NO USE. IT WAS FURTHER CONFIRMED THAT THE INITIAL PRO DUCT DEVELOPED BY THE MAIN DIVISION IN JULY 1999 WAS HCP DICOM VIEWER WHICH WAS A STAND ALONE PRODUCT AND WHICH WOULD VIEW DATA DOWNLOADED FROM EXTERNAL SOURCES LI KE CATHLAB THROUGH NETWORK ALONG WITH THE CD AND ITS NAME WAS CHANGED TO DICO M NET. THE EXPORT SALES OF ITS PRODUCT WERE RECORDED IN STP DIVISION WHERE THE EXP ENDITURE FROM INCEPTION OF THE COMPANY TO MARCH 2000 WAS INCURRED IN MAIN DIVISION AS THE COMPANY WAS DEVELOPING SOME ADDITIONAL PROTOCOLS THAT THE DICO M VIEWER COULD ALSO VIEW DATA RECEIVED NOT ONLY FROM CATHLAB BUT ALSO FROM ULTR ASOUND AND CT SCANNING MACHINE. THE NAME OF THE PRODUCT WAS CHANGED TO IMAGING W HILE THE PRODUCT DEVELOPMENT EXPENDITURE WAS STILL BEING DEBITED IN THE MAIN DIV ISION. ON THE BASIS OF THESE OBSERVATIONS THE A.O CONCLUDED THAT THE DICOM NET AND IMAGINE ARE IMPROVEMENTS OF VIEWER THE DICOM NET IS NOT AN IND EPENDENT PRODUCT AND CANNOT FUNCTION WITHOUT REVIEW FUNCTIONALITY IN DICOM NET THERE IS EMBEDDED COST OF DICOM VIEWER. THE ASSESSEE CLAIMED THAT DICOM VIE WER AND IMAGINE ARE THE PRODUCTS DEVELOPED BY THE MAIN DIVISION AND DICOM N ET WAS THE PRODUCT DEVELOPED BY THE STP DIVISION WHEREAS THE A.O IS OF THE OPINI ON NON ONLY THE DICOM NET WAS ADVANCED VERSION OF THE DICOM VIEWER AND THERE WAS EMBEDDED COST OF DICOM VIEWER IN DICOM NET BUT HE ALSO CONCLUDED THAT DICO M NET WAS DEVELOPED BEFORE THE STP DIVISION HAD COME INTO EXISTENCE. 12. ACCORDING TO THE A.O THE MAIN EXPENDITURE PER TAINING TO THE DEVELOPMENT OF SOFTWARE DICOM VIEWER AND DICOM NET WAS INCURRED IN THE MAIN DIVISION AND THE RECEIPTS WERE SHOWN AS EXPORTS IN STP DIVISION. TH E A.O. ALLEGED WAS IF THE ASSESSEE WAS DIVERTING THE INCOME OF THE MAIN DIVI SION TO STP DIVISION HE STATED ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 7 THAT IN THE A.Y. 2000-01 THE COMPANY HAS SHOWN INCO ME FROM CONTRACT IN STP DIVISION WHEREAS THE STP DIVISION WAS ESTABLISHED O NLY ON 23.7.2000. HE NOTED THAT THE EXPENDITURE DURING MARCH 2000 TO MAY 2000 WAS A CCOUNTED ONLY ON THE BASIS OF DEBIT NOTES ISSUED BY THE MAIN DIVISION TO STP DIVI SION AND NOT THE ENTIRE EXPENDITURE PERTAINING TO THE SOFTWARE WAS DEBITED TO STP DIVISION. 13. THE ASSESSEE ALSO NOTED THAT THE MAIN EXPENDITU RE IN SOFTWARE DEVELOPMENT WAS SALARY PAID TO THE SOFTWARE ENGINEERS. IN THE CASE OF THE COMPANY SINCE THERE WAS NO INDEPENDENT PRODUCT IN STP DIVISION THE SOF TWARE ENGINEERS HAD NOT BEEN ASSIGNED ANY SEPARATE WORK. THE A.O. ALSO NOTED THA T THE STP DIVISION HAD ASSETS OF ONLY RS. 15 LAKH WHEREAS THE MAIN DIVISION HAD ASS ETS WORTH RS. 1.03 CRORES. THE ASSESSEE WAS ISSUED ONLY DEBIT NOTES IN RESPECT OF OFFICE PREMISES ELECTRICITY TELEPHONE AND FURNITURE USED ON THE BASIS OF 50% UT ILIZATION BY STP DIVISION. THE A.O. NOTED FURTHER THAT AT THE TIME OF SURVEY A REAS OF STP DIVISION AND MAIN DIVISION HAD NOT BEEN DEMARCATED. UNDER THESE CIRC UMSTANCES THE A.O CONCLUDED THAT STP DIVISION HAD NOT MANUFACTURED OR PRODUCED ANY SOFTWARE DURING THE PREVIOUS YEAR IN RESPECT OF WHICH THE COMPANY HA D CLAIMED SALES AND SHOWED PROFITS. THE A.O HELD THAT THE DICOM NET WAS NOT A NEW PRODUCT BUT WAS RENAMED AFTER SOME ADDITIONAL PROTOCOL WERE ADDED TO DICOM VIEWER COST OF WHICH WAS EMBEDDED IN THE COST OF DICOM NET AS ADMITTED BY TH E ASSESSEE. 14. BEFORE THE LD CIT(A) THE ASSESSEE CONTENDED THE ABOVE ACTION OF THE A.O. THE LD CIT(A) CALLED REMAND REPORT ON THE SUBMISSIO NS OF THE ASSESSEE AND BEING NOT SATISFIED WITH THE SUBMISSION OF THE ASSESSEE THE LD CIT(A) HAS UPHELD THE ACTION OF THE A.O. THE LEAD A.Y. 2002-03 WHEREIN THE LD CIT(A) HAS DISCUSSED THE ISSUE IN DETAILS AND HAS FOLLOWED HIS FINDINGS ON T HE ISSUE RAISED IN REMAINING A.Y. THAT IS IN A.YS. 2000-01 AND 2001-02. ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 8 15. BEFORE US THE LD. A.R. HAS REITERATED THE SUBM ISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE TRIED TO DISTINGUISH THE PR ODUCTS MANUFACTURED BY MAIN UNIT AND STP UNIT. HE ALSO TRIED TO MEET OUT THE OBJECT S RAISED BY AUTHORITIES BELOW TO JUSTIFY THEIR ACTIONS THAT THE ASSESSEE IS NOT ELI GIBLE FOR CLAIMED DEDUCTION U/S. 10A OF THE ACT IN RESPECT OF ST UNIT. THE LD. A.R. PLA CED RELIANCE ON THE FOLLOWING DIVISIONS : 1. KINATIC HONDA MOTOR LTD. 77 ITD 393 (PN.) 2. CIT VS. VIGNESHKUMAR JAULAN 330 ITR 209 (MAD.) 3. CIT VS. TECHDRIVE INDIA PVT. LTD. 232 CTR 117 4. METROPOLITAN SPRINGS 191 ITR 288 (BOM.) 5. CIT VS. METAL LAMPS CAPS (P) LTD. 163 ITR 822 (KAR.) 6. CIT VS. SIMMONDS MARSHALL LTD. 161 ITR 817 (BO M.) 7. CIT VS. ASSOCIATE CEMENT COMPANIES LTD. 118 IT R 406 (BOM.) 8. CIT VS. INDIAN ALUMINIUM COMPANY 108 ITR 367 (SC). 9. TECHNIGRAPHICS (I) P. LTD. VS. ACIT ITA NO. 13 70/PN/2009 (A.Y. 2006-07) ORDER DATED 27 TH MAY 2011. WITHOUT PREJUDICE TO THE ABOVE SUBMISSION THE LD. A.R. ALSO ADVANCED AN ALTERNATIVE ARGUMENT THAT IN CASE THE ASSESSEE DESIRED IT WOUL D HAVE CONVERTED ITS MAIN DIVISION ALSO INTO AN STPI UNIT AND IN VIEW OF THE BOARD CIRCULAR NO.1 DATED 6TH JANUARY 2005 THE ENTIRE PROFITS OF THE ASSESSEE CO MPANY WOULD HAVE BEEN ELIGIBLE FOR DEDUCTION UI/S. 10A. THIS VIEW IS ALSO SUPPORT ED BY CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF SRA SISTEMS LTD. 24 DTR 6 33 (CHEN.) 16. THE LD. D.R. ON THE OTHER HAND PLEASED RELIAN CE ON THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT THE ASSESSEE MADE A FRAUDULENT CLAIM OF DEDUCTION U/S. 10A IN A.Y. 2000-01 ON THE GROUNDS THAT IT HAD STARTED PRODUCTION OF SOFTWARE WITH THE 2 COMPUTED ON 30 TH MARCH 2000 AND EVEN RAISED EXPORT BILLS FOR SUCH PRODUCE IN THE NAME OF STP EVEN WHEN ADMIT TEDLY SUCH SOFTWARE SERVICES ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 9 WERE RENDERED BY THE EXISTING OLD UNITS. WITHOUT P REJUDICE TO THE ABOVE SUBMISSION HE SUBMITTED THAT EVEN IF IT IS PRESUMED THAT NEW UNIT STARTED PRODUCTION DURING THE A.Y. 2001-02 AND HENCE ELIGIBLE FOR DEDUCTION U/S. 10A FOR AND FROM A.Y. 2001-02 THE ASSESSEE HAS NOT SET UP A NEW UNIT AT ALL AND IT IS MERELY A CASE OF SPLITTING UP OFF THE ADJUSTMENT OF THE SOFTWARE DEVELOPMENT AND EXPORT ACTIVITY EXPORT TURNOVER AND RELATED PROFITS. THE LD. D.R. ALSO MADE OTHER SUBMISSIONS WHICH WE WILL DISCUSS IN THE SUCCEEDING PARAGRAPHS IN OUR FINDINGS ALONG WITH SUBMISSION OF LD. A.R. THE LD. A.R. ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS : 1. TEXTILE MACHINERY CORPORATION 107 ITR 195 (SC) 2. BAJAJ TEMPO LTD. 196 ITR 188 (SC) 3. CHENAB INFORMATION TECHNOLOGY (P) LTD. (2008) 2 5 SOT 432 (MUM.) 4. SAURASHTRA CEMENT AND CHEMICALS LTD. 260 ITR 1 81 (SC) 5. NALCO CHEMICALS (I) LTD. 280 ITR 96 (AT) (CAL. ) ------ 6. NIPPON ELECTRONICS (I) (P) LTD. 181 ITR 518 (K AR.) 17. LD. D.R. ALSO TRIED TO DISTINGUISH THE FACTS O F THE CASES RELIED UPON BY THE LD. A.R. 18. WE FIND THAT THE A.O HAS DENIED THE CLAIMED DE DUCTION U/S. 10A ON THE PROFITS OF STP UNITS MAINLY ON THE FOLLOWING GROUND S : 1. WITH STP REGISTRATION IN HAND THE ASSESSEE CLA IMED THAT IT HAD DEVELOPED A NEW PRODUCT HCP DICOM NET WHICH WAS IN FACT THE IMPROVEMENT OF THE PRODUCT HCP DICOM VIEWER DEVEL OPED BY THE OLD DIVISION. THE ASSESSEE NOT ONLY CLAIMED THAT THE P RODUCT WAS DEVELOPED BY THE NEW DIVISION BUT ALSO DIVERTED THE EXPENSES IN SUCH A MANNER THAT THERE WERE LOSSES IN MAIN DIVISION AND PROFITS IN STP DIV ISION WHICH WERE CLAIMED AS EXEMPT. ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 10 2. THE STP DIVISION WAS NOT A NEWLY ESTABLISHED U NDERTAKING AS TO MAKE ITSELF ELIGIBLE FOR THE BENEFIT OF THE PROVISION O F SECTION 10A OF THE ACT AND IT DID NOT HAVE ANY PRODUCT OF ITS OWN WHICH IT COUL D EARN INCOME. ONLY THE EXPORT SALES WERE SHOWN IN THIS DIVISION TO SHOW BE NEFITS OF SECTION 10A. 19. WE HAVE ALREADY DISCUSSED THE RELEVANT FACTS AN D THE OBSERVATIONS OF THE A.O IN BRIEF WHILE COMING TO THE ABOVE CONCLUSIONS BY HIM TO JUSTIFY THE DENIAL OF THE CLAIMED DEDUCTION U/S. 10A OF THE ACT TO STP UNITS . NOW FIRST WE HAVE TO SEE AS TO WHETHER THE AUTHORITIES BELOW WERE JUSTIFIED IN HOL DING THAT NO NEW PRODUCT WAS DEVELOPED BY STP AND THE PRODUCT HCP DICOM NET C LAIMING TO BE A NEW PRODUCT OF STP UNIT WAS IN FACT AN IMPROVEMENT OF PRODUCT HC P DICOM VIEWER DEVELOPED BY THE OLD UNIT. INITIALLY WE FIND THAT ANSWER IS EM BEDDED IN SUCH OBSERVATION OF THE A.O UPHELD BY THE LD CIT(A) ADMITTING THAT THE CL AIMED NEW PRODUCT HCP DICOM NET IS AN IMPROVEMENT OF THE PRODUCT HCP DICOM V IEWER. THE A.O THUS ACCEPTS THAT HCP DICOM NET IS AN IMPROVED VERSION OF H CP DICOM VIEWER. THEN THE QUESTION WOULD BE AS TO WHETHER HCP DICOM NET HAS BEEN PRODUCED BY THE NEW DIVISION I.E. STP UNIT. 20. THE LD. A.R. HAS ALSO TRIED TO DISTINGUISH BO TH THE PRODUCTS TO SUPPORT THE CONTENTION THAT HCP DICOM NET WAS NEW AND DIFFERE NT PRODUCT THAN HCP DICOM VIEWER. THE SUBMISSION OF THE LD. A.R. REMAINED T HAT THE PRODUCT HCP DICOM VIEWER AND HCP DICOM NET ARE USED IN CARDIOLOGY HOSPITAL AND ARE BASED ON A GLOBALLY ACCEPTED STANDARD WITH DICOM (DIGITALLY IM AGING COMMUNICATION IN MEDICINE) . HE SUBMITTED THAT THOUGH THE PRODUCTS HAVE SIMILAR NAME THEY DIFFER VASTLY IN THEIR TECHNOLOGY BUILT UP DEVELOPMENT F EATURES AND USERS OF THE SYSTEM. HE SUBMITTED THAT THE HCP DICOM VIEWER WAS DEV ELOPED IN THE YEARS 1998-99 WHICH WORKS ON STAND ALONE PC AND INSTALLS FAIRLY EASILY LIKE ANY OTHER STANDARD SOFTWARE ON A PC. THE PRODUCTS IS USED BY CARDIOLO GISTS CARDIAC SURGEONS AND ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 11 OTHER DOCTORS. HE SUBMITTED THAT ITS MAIN FEATURES ARE REVIEW OF DICON VIEWER AND FUNCTIONS RELATING TO IMAGE VIEW SUCH AS ANNOTATIN G IMAGES CONVERTING THEM TO BMP/AVI PRINTING REPORTS ETC. HE SUBMITTED THAT IN BRIEF DESCRIPTION HCP DICOM VIEWER IS A PRODUCT THAT ADDRESSES THE REVIEW OF D ICOM CDS ON A SINGLE OR STAND ALONE PC AND IS TARGETED AT USERS THAT REQUIRE BA SIC REVIEW ANGIOGRAPHIC IMAGES TO ANALYZE THE CORONARY ARTILLERY DISCEASES TO GIV E REPORTS TO HIS/HER PATIENTS. 21. THE LD. A.R. SUBMITTED THAT HCP DICOM NET WAS DEVELOPED DURING MARCH 2000 ONWARDS. IT WORKS ON NET WORKED ENVIRONMENT O F MEDICAL EQUIPMENTS SERVERS PCS AND STORAGE AREA NETWORKS (SAN) AND RO BOTIC LIBRARIES AS LONG TERM ACHIEVES (LTA). FOR ITS INSTALLATION REQUIRES HIGH LY QUALIFIED PRODUCT SPECIALISTS ON SITE WITH KNOWLEDGE OF DICOM COMMUNICATION WIND OWS OPERATING SYSTEMS. IT ALSO REQUIRES CONFIGURATIONS OF MEDICAL EQUIPMENTS TO SET UP DICOM PARAMETERS TO SET UP COMMUNICATIONS AND TRANSFER OF IMAGES TO OTH ER NETWORK IN THE HOSPITAL. IT IS USED IN CARDIAC HOSPITALS UNIVERSITY AND SUPER SPE CIALITY HOSPITALS. THE LD. A.R. DESCRIBED ITS MAIN FEATURE AS UNDER : HCP DICOM NET IS A CARDIAC IMAGING NETWORK PRODUC T AS THE NAME ITSELF SUGGESTS AND ADDRESSES THE FOLLOWING MAJOR FUNCTIO NS IN A CARDIAC HOSPITAL : ACQUISITION OF IMAGES FROM CATHLABS STORAGE AND RETRIEVAL OF THE DICOM IMAGES ON ONLIN E ARCHIVE IMAGE COMPRESSION AND DECOMPRESSION AS DICOM STANDA RDS QUANTIFICATION OF CORONARY ARTERY BLOCKS (QCA) FOR DIAGNOSIS WRITING OF DICOM CDS EXPORTING IMAGES TO OTHER IMAGING NETWORKS REVIEW OF IMAGES FROM ONLINE STORAGE NETWORK AR CHIVE AND LONG TERM ARCHIVE STORAGE AND RETRIEVAL OF IMAGES FROM LONG TERM ARCH IVAL (LTA) ON ROBOTIC LIBRARIES OF DVDS DLTS ETC. TO DEVELOP THE HCP DICOM NET PRODUCT STP DIVISION ACQUIRED THE FOLLOWING TECHNOLOGY COMPONENTS AND TECHNICAL DOCUMENTS : POINT CD ARCHIVE SOFTWARE DEVELOPMENT TOOLKIT IN AP RIL 2000 ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 12 PHILIPS DICOM CONFORMANCE STATEMENT FOR HSD II FOR COMMUNICATION WITH PHILIPS CATHLABS IN MAY 2000 ROBOTIC TAPE LIBRARY DOCUMENTATION AND TECHNICAL DE TAILS FROM PHILIPS AND COMPAQ IN MAY 2000 STP DIVISION PURCHASED HP TAPE LIBRARY JULY 2001 FO R $12 000 AND PIONEER DVD LIBRARY APRIL 2001 FOR $15 4000. IT IS A ESTABLISHED FACT THAT EVERY MEDICAL IMAGING PRODUCT HAS TO HAVE A VIEWER COMPONENT FOR DOCTORS TO REVIEW IMAGES TO MAKE DIAGNOSIS AND DETERMINE THE EXTENT OF DISEASE. 22. THE LD. D.R. ON THE OTHER HAND HAS TRIED TO SUB MIT THAT BOTH THE PRODUCTS ARE ALMOST SIMILAR AND THE CLAIMED NEW PRODUCT IS NOTHI NG BUT IMPROVEMENT OF OLD PRODUCT ONLY. HE HAS ALSO FURNISHED LITERATURE ON DICOM DOWNLOADED FROM WIKPEDIA A FREE ENCYCLOPADEA. THE LITERATURE ACTUA LLY TALKS ABOUT DICOM STANDARD WHICH CONSISTS OF MANY DIFFERENT SERVICES MOST OF WHICH INVOLVED TRANSMISSION OF DATA COVER A NET WORK AND FILE FORMAT IS A LATER AND RELATIVELY MINOR ADDITION TO THE STANDARD. 23. ON PERUSAL OF THE ABOVE SUBMISSIONS WE FIND THAT ADMITTEDLY DICOM WITH DIFFERENT ADDITIONS CAN BE USED FOR DIFFERENT SERVI CES MOST OF WHICH INVOLVED TRANSMISSION OF DATA OVER A NET WORK. EVEN UNDER TH IS BACKGROUND WE DO NOT FIND REASON TO DIFFER WITH THE CONTENTION OF THE LD. A. R. THAT HCP DICOM NET AND HCP DICOM VIEWER ARE TWO DIFFERENT PRODUCTS ADDRESSIN G TWO DIFFERENT CUSTOMER PROFILES TECHNOLOGY COMPONENTS OPERATING AND AP PLICATION ENVIRONMENT AS WELL AS HAVE DIFFERENT PRODUCT ARCHITECTURES. HCP DICOM NE T LIKE ANY OTHER MEDICAL IMAGING NET WORK OR DIAGNOSTIC PRODUCTS HAS A VIEWER COMPO NENT JUST LIKE THE FACT THAT EVERY MOBILE SET HAS AN ABILITY TO MAKE AND RECEIVE CALLS BUT WE CANNOT LEVEL ALL MOBILES AS ONE OR THEY ARE SAID TO BE ENHANCED V ERSION OF ONE ANOTHER. THEREFORE AS THE NAME SUGGESTS HCP DICOM NET IS A COMPLEX CORDICA IMAGING NET WORK PRODUCT THAT CANNOT BE DERIVED WITH MERE ENHAN CEMENTS. IT REQUIRES SUSTAINED DEVELOPMENT OF VARIOUS MODULES OVER THE YEARS. ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 13 24. NOW THE NEXT QUESTION IS AS TO WHETHER THE NE W PRODUCT HCP DICOM NET WAS MANUFACTURED IN THE NEW DIVISION I.E. S.T.P UNI T. THE ALLEGATION OF THE AUTHORITIES BELOW SUPPORTED BY THE LD. D.R. BEFORE US REMAINS THAT THE PRODUCT DICOM NET WAS DEVELOPED IN THE MAIN UNIT I.E. OLD UNIT AND ONLY THE SALES ARE SHOWN IN THE S.T.P. UNIT FOR CLAIMING DEDUCTION U/S. 10A. THE PRODUCT WAS READY BY MARCH 2000. THE EMPLOYEES EXAMINED DURING THE C OURSE OF SURVEY IN 2005 AGREED THAT THE DICOM NET IS AN IMPROVED VERSION OF DICOM VIEWER I.E. PRODUCT OF THE OLD UNIT. THE A.O HAS OBSERVED FURTHER THAT TH E DETAIL DATED 11THE APRIL 2000 (PAGE NO.111 OF THE PAPER BOK) FOR THE PRINTING OF BROCHURES OF DICOM NET INDICATES THAT THE PRODUCT WAS READY. 25. THE SUBMISSION OF THE LD. A.R. TO THESE ALLEGAT IONS REMAINED THAT THE PRICE RANGE OF DICOM VIEWER WAS UPTO DOLLOR 3000 WHILE THE PRICE RANGE OF DICOM NET WAS DOLLOR 8500 TO DOLLAR 55000. IT ALSO ESTABLI SHES THAT DICOM NET WAS AN ALTOGETHER DIFFERENT PRODUCT. SOME RELEVANT EXTRAC T OF SUBMISSIONS OF THE LD. A.R IS BEING REPRODUCED HEREUNDER : DICOM NET IN ITS CONFIGURATION DIFFERED FROM CUS TOMER TO CUSTOMER AS ITS PRICE RANGE INDICATES. FOR EVERY CUSTOMER THE ASS ESSEE HAD TO PRODUCE THIS SOFTWARE SEPARATELY DEPENDING ON THE REQUIREMENTS AND ITS ENGINEERS HAD TO PERSONALLY GO TO THE CUSTOMER TO FIT THIS PRODUCT. THUS THIS WAS NOT A SALE ACROSS THE COUNTER AND BY NO STRETCH OF IMAGINATION THE A.O.S STATEMENT THAT THE PRODUCT WAS READY IN THE MAIN UNIT AND ONL Y SOLD FROM THE STPI UNIT CAN BE CONSIDERED TO BE CORRECT. ONLY 12 SAMPLE BROACHERS WERE PRINTED FOR DICOM N ET IN APRIL TO GET A FEEDBACK FROM THE DOCTORS. IF THE PRODUCT WAS READ Y A LARGE NUMBER OF BROACHERS COULD HAVE BEEN PRINTED. THE CRUCIAL COMPONENTS OF THE DICOM NET I.E. CD WRI TING TECHNOLOGY AND IMAGE INTERFACE WERE MADE AVAILABLE TO THE ASSESSE E ONLY IN APRIL / ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 14 MAY 2000 AND HENCE THE QUESTION OF THE DICOM NET R EADY FOR SALE IN MARCH 2000 DOES NOT ARISE. THE COPYRIGHT APPLICATION FOR A DICOM NET WAS SUBMI TTED IN FEB. 2001 WHILE THE COPYRIGHT APPLICATION FOR DICOM VIEWER WAS SUBM ITTED IN APRIL 2000. IF THEY WERE THE SAME PRODUCTS THE COPYRIGHT COULD NO T HAVE BEEN SEPARATE. THE EMPLOYEES EXAMINED DURING SURVEY IN 2005 WERE N OT WITH THE ASSESSEE DURING THE YEAR 2000 01 AND HENCE THEY COULD NOT GIVE CORRECT ANSWERS. SECONDLY TO CALL THIS PRODUCT AS AN IMPROVED VERSI ON OF THE DICOM VIEWER IS SOMETHING LIKE CALLING THE PRESENT IPHONE AS AN IMP ROVED VERSION OF THE OLD MOBILE MANUFACTURED 10 YEARS BACK. WE FIND SUBSTANCE IN THE CONTENTION OF THE LD. A.R. THAT DICOM NET AND DICOM VIEWER WERE DIFFERENT PRODUCTS. IN ESSENCE IN A L AYMANS UNDERSTANDING DICOM NET WAS IMPROVED VERSION OF DICOM VIEWER WHICH I S ALSO EVIDENT FROM THE PRICE OF THESE TWO PRODUCTS. IN SUMMARY THE CASE OF THE AUT HORITIES BELOW REMAINED THAT THE DICOM NET IS THE IMPROVED VERSION OF DICOM VIEWER BUT AT THE SAME TIME THEY ALLEGED THAT EXTEND OF IMPROVEMENT WAS NOT SO MATER IAL TO CLAIM THAT DICOM NET WAS DIFFERENT PRODUCT THAN DICOM VIEWER. WE THUS FIND THAT AT LEAST THERE IS NO DISPUTE THAT DICOM NET IS AN IMPROVED VERSION OF DICOM VIEWER BUT AT THE SAME TIME UN-REBUTTED PRICE DIFFERENCE AND FUNCTIONAL ADVANTAGES OF DICOM NET POINTED OUT BY THE ASSESSEE UNDOUBTEDLY SUGGEST THAT THE IM PROVEMENT ON THE DICOM VIEWER WAS SIGNIFICANT TO STAND IT AS THE IMPROVED PRODUCT DIFFERENT FROM THE OLD ONE IN THE MARKET. 26. THE NEXT ALLEGATION OF THE AUTHORITIES BELOW RE MAINED THAT THE STP UNIT IS NOT SEPARATED FROM THE MAIN UNIT BY A WALL OR A PARTIT ION AND HENCE IT IS NOT A SEPARATE UNIT. IN THIS REGARD WE FIND SUBSTANCE IN THE CON TENTION OF THE LD. A.R. THAT THERE IS NO REASON AS TO WHY THERE SHOULD BE A WALL BETWEEN THE TWO UNITS. THERE IS NO SUCH REQUIREMENT IN THE PROVISIONS OF LAW AS TO TEST AS TO WHETHER THE STP UNIT IS A ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 15 SEPARATE UNIT . THE RECOGNITION OF STPI AUTHORITIE S IN OUR VIEW IS A VALID PROOF TO EXAMINE THE INDEPENDENT EXISTENCE OF STPI UNIT. I N THE PRESENT CASE THERE IS NO DISPUTE THAT STPI AUTHORITY HAVE RECOGNIZED THE UNI T AS A SEPARATE UNIT. IN PAGE NOS. 26 & 27 OF THE PAPER BOOK HAS BEEN GIVEN THE CITE PLAN OF THE OLD UNITS AND STP UNIT SHOWING THE AREA THEREIN MARKED FOR THESE 2 UNITS. THUS IT APPEARS THAT AREA HAS BEEN DEMARCATED FOR STPI UNIT WHICH IS DIF FERENT FROM THE MAIN UNIT. THE ASSESSEE HAS ALSO MADE AVAILABLE AT PAGES 172 TO 1 75 OF THE PAPER BOOK THE COPY OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE GOVER NMENT DATED 29 TH MARCH 2000 AGREEING THEREIN THAT UNIT SHALL EARN FOREIGN EXCHA NGE BY EXPORTING 100% OF PRODUCTION OF THEIR COMPUTER SOFTWARE FOR A PERIOD OF 5 YEARS. ON BEHALF OF THE GOVERNMENT DIRECTOR AND CHIEF EXECUTIVE SOFTWARE TECHNOLOGY PARKS OF INDIA TILAK ROAD PUNE HAS ENTERED INTO AGREEMENT. UNDE R THESE CIRCUMSTANCES WE DO NOT FIND SUBSTANCE IN THE CONTENTION OF THE AUTHORI TY BELOW THAT STPI UNIT IS NOT SEPARATE FROM THE MAIN UNIT. 27. BESIDES ABOVE THERE IS NO CONDITION THAT A NEW INDUSTRIAL UNDERTAKING SHOULD MANUFACTURE A NEW PRODUCT. IN THIS REGARD WE FIND SUPPORT FROM THE DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. SERVION GLOBAL SOLUTIONS LTD 115 ITD 95(CHENNAI). 28. THE CONTENTION OF THE LD. D.R. ALSO REMAINED T HAT THERE WERE ONLY 2 COMPUTERS IN THE STPI UNIT. IT WAS FURTHER POINTED OUT THAT ON 30 TH MARCH 2000 THE BILLS FOR EXPORT SALES TO INVUE SOFTWARE AND DECOS E SOFTWARE RAISED FROM THE NEW UNIT INDICATE THAT THE NEW UNIT IS FORMED BY SPLITT ING OF THE OLD UNIT. HE SUBMITTED THAT THE CONDITION THAT THE NEW UNIT SHOULD NOT BE FORMED BY SPLITTING UP OR RECONSTRUCTION OF THE OLD UNIT SHOULD BE SEEN IN TH E FIRST YEAR AND IF IT IS NOT SATISFIED THE NEW UNIT DOES NOT GET DEDUCTION IN THE FUTURE A LSO. THE SUBMISSION OF THE LD. A.R. TO THE ABOVE CONTENTION OF THE LD. D.R. REMAIN ED THAT THE ASSESSEE HAS ADMITTED THAT THE EXPORT SALES OF INVUE AND DECOS E WERE WRONGLY BILLED FROM THE ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 16 STPI UNIT. THE SOFTWARE WAS DEVELOPED IN THE OLD UNIT AND THEREFORE IN ITS REPLY COPY MADE AVAILABLE AT PAGE NO. 159 OF THE PAPER B OOK THE ASSESSEE FAIRLY ADMITTED THAT THIS WAS A MISTAKE. THE MISTAKE IS APPARENT ALSO FROM THE FACT THAT DURING THE YEAR 2000-01 STPI WAS ONLY IN EXISTEN CE FOR 2 DAYS ONLY AND THE BILLS RAISED ON THESE 2 COMPANIES (ON PAGES 123 TO 126 O F THE PAPER BOOK) ARE FOR RS. 5 11 530 FOR THE SUPPLY OF 377 UNITS WHICH IS IMPO SSIBLE TO MANUFACTURE IN TWO DAYS. IT WAS SUBMITTED THAT A MISTAKE IN RAISING A BILL WRONGLY FROM THE NEW UNIT DOES NOT AMOUNT TO SPLITTING UP OF THE BUSINESS. T HE A.O. ON PAGE NO. 4 & 10 OF THE ASSESSMENT ORDER FOR A.Y. 2000-01 HAS ACCEPTED THAT TILL 31 ST MARCH 2000 THE NEW UNIT WAS NOT FUNCTIONAL. THUS THE A.O ADMITS THAT THERE IS NO BUSINESS DONE BY THE STPI UNIT THIS YEAR AND THE SALES EXPENSES S HOWN IN THE STPI UNIT PERTAINED TO THE MAIN UNIT. HENCE THE QUESTION OF SPLITTING UP OF THE BUSINESS BETWEEN THE OLD AND NEW UNIT DOES NOT ARISE. 29. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS THE LD. A.R. ARGUED FURTHER THAT THE CONCEPT OF SPLIT UP HAS BEEN ANALIZED BY THE H ONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN GENERAL INDUSTRIES LTD. 1 37 ITR 851 (DELHI) HOLDING THAT SPLITTING UP MEANS THE INTEGRITY OF BUSINESS IS DI VIDED. IT WAS SUBMITTED THAT IN THE CASE OF ASSESSEE WHEN NO PRODUCTION HAS BEEN DONE BY STPI UNIT TILL 31 ST MARCH 2000 THE QUESTION OF DOING DIVISION OF BUSINESS B Y IT DOES NOT ARISE. HE SUBMITTED THAT THE BUSINESS DONE IN THE NEW UNIT IS OF MANUF ACTURING DICOM NET AND THIS PRODUCT WAS NEVER MANUFACTURED IN THE OLD UNIT. SO WHERE IS THE QUESTION OF SPLITTING UP OF THE UNIT. 30. REGARDING THE RE-CONSTRUCTION POINT THE LD. A. R. SUBMITTED THAT THERE IS NO PLANT & MACHINERY TRANSFERRED FROM THE OLD UNIT TO THE NEW UNIT. HENCE THERE IS NO RE-CONSTRUCTION. ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 17 31. NEITHER THE A.O. NOR THE LD CIT(A) HAS MADE OUT THE CASE FOR SPLITTING UP SUBMITTED THE LD. A.R. THUS THE LD. D.R. CANNOT T AKE THIS STAND. SECONDLY WHEN THE A.O HAS OBSERVED THAT THE NEW UNIT WAS NOT FUN CTIONAL TILL 31 ST MARCH 2000 THE STANDS OF THE LD. D.R. IS CONTRARY TO THAT OF A.O WHICH IS NOT PERMITTED IN VIEW OF THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF MAHINDRA & MAHINDRA 122 TTJ 577. 32. CONSIDERING THE ABOVE SUBMISSION OF THE PARTIES WE DO NOT FIND REASON TO DOUBT THE SUBMISSIONS OF THE LD. A.R. THAT BILLS D ATED 30 TH MARCH 2000 AND 31.3.2000 FOR EXPORT SALES TO INVUE USA AND DECOSE SOFTWARE NETHERLAND RAISED WERE SHOWN ISSUED FROM THE NEW UNIT BY MISTAKE ESP ECIALLY WHEN THE MISTAKE IS APPARENT FROM THE MATERIAL FACT THAT DURING THE Y EAR 2000-01 STPI WAS IN EXISTENCE ONLY FOR 2 DAYS AND BILLS RAISED ON THES E 2 COMPANIES (PAGE NOS. 123 TO 126) WERE FOR RS. 1 30 050 AND RS. 3 81 480/- FOR THE SUPPLY OF 120 AND 352 UNITS RESPECTIVELY PRODUCTION OF WHICH IN NEW UNIT IN TW O DAYS IS IMPOSSIBLE. UNDER THESE CIRCUMSTANCES QUESTION OF SPLITTING UP OF TH E BUSINESS BETWEEN OLD UNIT AND NEW UNIT ALSO DOES NOT ARISE. NOR IS IT THE CASE OF THE AUTHORITIES BELOW THAT THERE WAS SPLITTING UP OF OLD UNIT INTO NEW UNIT. 33. THE A.O ALSO ALLEGED THAT THE EMPLOYEES OF THE MAIN DIVISION TRANSFERRED TO STPI UNIT AND THE NEW PRODUCT WAS DEVELOPED BY THESE EMPLOYEES IN THE OLD UNIT. WE FIND SUBSTANCE IN THE SUBMISSION OF THE L D. A.R. IN GETTING OUT OF THIS APPREHENSION OF THE A.O. THERE IS NO DOUBT THAT TH E PRODUCTION OF DICOM NET IS BRAINWORK OF A PERSON. THE SUBMISSION OF THE LD. A .R. REMAINED THAT IT WAS BRAIN WORK OF MR. KAMAT THE M.D. AT PAGE NO. 28 OF THE PAPER BOOK IS GIVEN THE LIST OF EMPLOYEES SEPARATELY FOR TWO DIVISIONS.. WE ALSO A PPRECIATE THAT IN ANY COMPANY WHEREIN NEW INDUSTRIAL UNDERTAKING IS ESTABLISHED SOME OF THE MAIN PERSONS LIKE CHAIRMAN MD AND SENIOR MANAGERS ARE RETAINED. F URTHER THAT THERE IS NO PROHIBITION AGAINST SUCH ASSIGNMENT IN SEC. 10A OF THE ACT. IN THIS REGARD WE ALSO ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 18 FIND SUPPORT FROM THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF 232 ITR/ CTR 117 (DEL.). 34. THE LD. D.R. ALSO SUBMITTED THAT THE FIRST YE AR SHOULD BE CONSIDERED THE A.Y. 2000-01 FOR THE CLAIM OF DEDUCTION U/S. 10A AS THE STP UNIT IS FORMED ON 29/3/2000 AND BOOKED ITS SALES/EXPORTS IN A.Y. 200 0-01 AND IF THE ASSESSEE IS NOT FOUND ELIGIBLE IN THE FIRST YEAR IT IS NOT ENTITLE D FOR THE BENEFIT IN THE SUBSEQUENT YEARS. HE SUBMITTED THAT THE NEW UNIT WAS FORMED BY SPLITTING OR RECONSTRUCTION OF EXISTING OLD BUSINESS HENCE IT DOES NOT QUALIFY F OR THE BENEFIT OF THE CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT. IN SUPPORT HE PLACED RELIANCE ON THE FOLLOWING DECISIONS : I. TEXTILE MACHINERY CORPORATION [107 ITR 195 (SC) ] II. BAJAJ TEMPO LTD. [196 ITR 188 (SC)] III. CHENAB INFORMATION TECHNOLOGY 25 SOT 432(MUM) IV. SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. 260 IT R 181 (SC) V. CIT V. NIPPON ELECTRONICS (181 ITR 518) VI. NALCO CHEMICALS (I) LTD. 280 ITR 96 (AT) (KOL ) THE LD. A.R. MET OUT THE ABOVE ARGUMENT OF THE LD. D.R. WITH THIS SUBMISSION THAT THE NEW UNIT IS NOT FORMED BY SPLITTING UP OR/REC ONSTRUCTION OF THE OLD BUSINESS. 35. SECONDLY SECTION 10A DEDUCTION IS AVAILABLE AN D STARTS FROM THE YEAR OF STARTING OF MANUFACTURE OR PRODUCTION CONTENDED TH E LD. A.R. HE SUBMITTED THAT NO PRODUCTION WAS STARTED IN THE NEW UNIT TILL 31.3.20 00 AND BILLS WERE RAISED WRONGLY FOR INVOUE AND DECOSE AND THE A.O IN THE ASSESSME NT ORDER 2000-01 HAS ALSO ACCEPTED THAT NEW UNIT WAS NOT FUNCTIONAL TILL 31 ST MARCH 2000. HE SUBMITTED THAT REPLY BY THE ASSESSEE AT THE TIME OF SURVEY DOES NO T ESTABLISH THE FACT. THE TRIBUNAL IS DUTY BOUND TO CORRECT THE ERROR IN THE ASSESSMEN T PROCEEDINGS. IN THIS REGARD HE ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 19 PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF AHMEDABAD ELECTRICITY CO. LTD. VS. CIT & ORS. 199 I TR 351 (BOM.) (F.B) HE SUBMITTED FURTHER THAT THE TRANSFER OF FEW EMPLOYEE FROM THE OLD UNIT TO THE NEW UNIT DOES NOT MEAN THAT IT IS A CASE OF SPLIT UP. IN THIS REGARD HE PLACED RELIANCE ON THE DECISION OF CHENNAI BENCH OF THE TRIBUNAL IN T HE CASE OF SERVION GLOBAL SOLUTIONS LTD. 115 ITD 95 (CHEN. ) . THE LD. A.R. SUBMITTED THAT THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CHENAB INFORMATION TECHNOLOGY (SUPRA) RELIED UPON BY THE LD. D.R. IS NOT APPLICAB LE AS IN THAT CASE THE NEW UNIT WAS MANUFACTURING THE SAME OLD PRODUCTION WHILE IN THE CASE OF PRESENT ASSESSEE THE NEW UNIT IS MANUFACTURING DICOM NET WHICH A N EW PRODUCT. HE SUBMITTED THAT IN THE CASE OF PRESENT ASSESSEE THE STP UNIT WAS SET UP ON 29.3.2000 BUT WAS NOT FORMED BY SPLITTING UP OF THE OLD UNIT. SECONDLY THE ASSESSEE HAS PROVED THE FIRST SALE OF DICOM NET WAS IN JUNE 2000 AND HENCE TH E FIRST YEAR OF CLAIMING OF DEDUCTION U/S. 10A IS A.Y. 2001-02. HE SUBMITTED T HAT AS PER SEC. 10A THE FIRST YEAR IS THE YEAR IN WHICH THE UNIT STARTS PRODUCT ION. HE ALSO TRIED TO DISTINGUISH THE DECISIONS RELIED UPON BY THE LD. D.R.. 36. HAVING GONE THROUGH THE DECISIONS RELIED UPON B Y THE PARTIES WE FIND THAT THE DECISIONS RELIED UPON BY THE LD. D.R. ARE NOT HELPFUL TO THE REVENUE AS THEY ARE HAVING DISTINGUISHABLE FACTS. IN THE CASE OF TEXT ILE MACHINERY CORPORATION (SUPRA) IT HAS BEEN HELD BY THE HONBLE SUPREME COURT THA T THERE MUST BE TRANSFER OF ASSESTS FROM THE EXISTING BUSINESS TO THE NEW INDUS TRIAL UNDERTAKING IN ORDER TO CONSTITUTE RECONSTRUCTION. IN THE CASE OF PRESENT ASSESSEE THERE IS NO SUCH TRANSFER OF ASSETS FROM THE OLD DIVISION TO THE NEW UNIT HE NCE IT IS NOT RE-CONSTRUCTION. 37. IN THE CASE OF BAJAJ TEMPO LTD. RELIED UPON B Y THE LD. A.R. IT HAS BEEN HELD THAT THE CONDITION OF SPLITTING UP OR RE-CONSTRUCT ION SHOULD BE SEEN IN THE FIRST YEAR OF FORMATION OF THE UNIT. IN THE CASE OF ASSESSEE A S EXPLAINED AND DISCUSSED EARLIER ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 20 THAT FOR THE FIRST YEAR I.E. IN MARCH 2000 THERE W AS NO TRANSFER OF ANY ASSETS FROM OLD DIVISION TO THE NEW UNIT HENCE THERE WAS NO SP LITTING UP OR RE-CONSTRUCTION AT THE TIME OF FORMATION OF THE STPI UNIT. IN OUR VI EW FOR SPLITTING UP THE INTEGRITY OF THE EXISTING BUSINESS MUST BE SPLIT WHEREAS IN TH E CASE OF THE ASSESSEE EXISTING BUSINESS CONTINUED TO BE CARRIED ON BY THE OLD DIVI SION. SECONDLY IN THE CASE OF BAJAJ TEMPO LTD. (SUPRA) THE HONBLE SUPREME COU RT HAS BEEN PLEASED TO HOLD THAT THE INCENTIVE PROVISION SHOULD BE LIBERALLY I NTERPRETTED. LIKEWISE THE DECISION IN THE CASE OF CHENAB INFORMATION TECHNOLOGY (SUPRA ) RELIED UPON BY THE LD. D.R. IS APPLICABLE ONLY IN THE CASES WHERE THE NEW UNIT PR ODUCES THE OLD PRODUCTS AS THAT OF THE OLD UNIT. THAT IS NOT THE CASE OF THE ASS ESSEE. 38. LIKEWISE IN THE CASE OF SOURASHTRA CEMENT AND C HEMICALS INDUSTRIES LTD. (SUPRA) RELIED UPON BY THE LD. D.R THE ASSESSEE WAS USING THE OLD UNIT AND ITS MACHINERY FOR THE PRODUCTION IN THE NEW UNIT. HENC E THE HONBLE SUPREME COURT WAS PLEASED TO HOLD THAT THE NEW UNIT IS NOT ENTIT LED FOR THE DEDUCTION. IN THE CASE OF ASSESSEE BEFORE US FOR PRODUCTION OF DICOM NET ONLY THE NEW UNIT WAS USED. 39. AGAIN IN THE CASE OF CIT VS. NIPPON ELECTRONICS (SUPRA) RELIED UPON BY THE LD. D.R. THE OLD MACHINERY WAS TRANSFERRED TO THE N EW UNIT EXCEEDING 20% OF THE TOTAL ASSET HENCE IT WAS HELD THAT THE DEDUCTION W AS NOT ALLOWABLE. IN THE CASES OF THE PRESENT ASSESSEE NO OLD MACHINERY WAS TRANSFE RRED TO THE NEW UNIT AND HENCE THE NEW UNIT WAS NOT FORMED OUT OF THE OLD UNIT. 40. IN THE CASE OF NALCO CHEMICALS (I) LTD. (SUPRA ) RELIED UPON BY THE LD. D.R THE OLD UNIT WAS RELOCATED AT A NEW PLACE AND THERE FORE THE DEDUCTION WAS NOT ALLOWABLE. IT WAS HELD THAT THE NEW UNIT IS NOT NE W BUT THE OLD UNIT WAS SHIFTED HENCE THIS CASE IS NOT APPLICABLE IN THE CASE OF THE PRESENT ASSESSEE. ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 21 41. UNDER THE ABOVE FACTS AND CIRCUMSTANCES WE ARE OF THE VIEW THAT THERE IS NO SUBSTANCE IN THE CONTENTION OF THE LD. D.R. THAT THE FIRST YEAR SHOULD BE CONSIDERED A.Y. 2000-01 FOR JUDGING THE ELIGIBILIT Y OF THE CLAIMED DEDUCTION U/S. 10A SINCE IT IS VERY MUCH CLEAR FROM THE WORDING OF THE SEC. 10A THAT THE DEDUCTION STARTS FROM THE YEAR OF STARTING OF MANUFACTURE OR PRODUCTION. AS DISCUSSED ABOVE THE PRODUCTION IN STPI UNIT WAS NOT STARTED TILL 31 ST MARCH 2000 AND ONLY THE BILLS WERE RAISED WRONGLY FOR INVUE AND DECOS AND THE A. O IN ITS ORDER FOR A.Y. 2000-01 HIMSELF HAS ACCEPTED THIS FACT THAT THE NEW UNIT WA S NOT FUNCTIONAL TILL 31 ST MARCH 2000. THE FIRST SALE OF DICOM NET WAS IN JUNE 2 000 AND HENCE WE CONCUR WITH THE CONTENTION OF THE LD. A.R. THAT THE FIRST YEAR OF CLAIM OF DEDUCTION U/S. 10A IS A.Y. 2001-02. BESDIES ABOVE WE ALSO WANT TO NOTE THE RELEVANT FACT HELPFUL IN DECIDING THE ISSUE OF ELIGIBILITY OF THE CLAIMED DE DUCTION U/S. 10A BY THE ASSESSEE ON STPI UNITS. THERE IS MISTAKE OF FACT IN PARA NO. 13 PAGE NO. 32 OF THE FIRST APPELLATE ORDER WHEREIN THE LD CIT(A) HAS WRONGLY M ENTIONED DATE OF REGISTRATION OF THE STP UNIT AS 29.3.1999 ACTUALLY THE CORRECT DAT E IS 28.3.2000. WE ALSO NOTE THAT ASSESSEE HAS TO SUBMIT THE INTIMATION ABOUT THE EXP ORTS FROM STPI UNITS TO THE STPI AUTHORITIES ALONG WITH EACH AND EVERY BILL AND THEY FORWARD IT TO RBI. ONE SUCH SAMPLE COPY HAS BEEN MADE AVAILABLE ON PAGE NO 209 TO 215 OF SECOND PAPER BOOK. IT IS CLEAR FROM THESE BILLS THAT ALL THE E XPORT FROM STPI UNIT INFORMED TO THE STPI AUTHORITY ARE RELATED TO THE PERIOD RELEVANT F OR A.Y. 2001-02.. 42. THE A.O. HAS OBSERVED THAT THERE WERE ONLY 2 C OMPUTERS TO START WITH THE STPI UNIT. THE CONTENTION OF THE ASSESSEE REMAINED THAT THESE WERE SUFFICIENT AS INITIALLY THE VOLUME OF BUSINESS WAS LOW. EVEN 2 COMPUTERS WOULD HAVE BEEN SUFFICIENT FOR MANUFACTURING DICOM NET REMAINED THE STATEMENT OF THE ASSESSEE TO WHICH WE DO NOT FIND REASON TO DOUBT IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. TECH DRIVE (I) PVT. LT D. 232 CTR (DEL.) 117 HOLDING THAT IT IS THE INTELLECT OF THE ENGINEERS THAT CREATE S OFTWARE. IN THAT CASE THE ASSESSEE ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 22 WAS USING THE COMPUTERS OF OTHER CONCERN FOR MANUF ACTURING SOFTWARE AND CLAIMED THE DEDUCTION U/S. 10B. THE HONBLE HIGH COURT HEL D THAT THE SOFTWARE IS MANUFACTURE OF THE INTELLECT OF THE PERSONNEL AND T HUS USE OF THE COMPUTERS WOULD NOT BE OF MUCH SIGNIFICANCE. IT ALLOWED THE DEDUCTI ON U/S. 10B TO THE ASSESSEE. SIMILARLY IN THE PRESENT CASE THE DEVELOPMENT OF DICOM NET IS THE BRAIN WORK OF MR. KAMAT. THERE IS ALSO NO SUBSTANCE IN THE CONTE NITON OF THE A.O THAT STP UNIT IS UNDER THE SAME ROOF AND IN THE SAME BUILDING AS T HE OLD UNIT SINCE IT DOES NOT IMPLY IT IS NOT A SEPARATE UNIT. FIRSTLY THE STP AUTHORITIES ALREADY HAD DEMARCATED THIS UNIT AS A SEPARATE UNIT IN THE OLD AS WELL AS NEW PREMISES. IN THIS REGARD WE FIND SUPPORT FROM THE DECISION OF HONBLE BOMBAY HI GH COURT IN THE CASE OF METROPOLITAN SPRINGS 191 ITR 288 (BOM.) HOLDING TH AT JUST BECAUSE THE NEW UNIT IS SITUATED UNDER THE SAME ROOF AS THE OLD UNIT IT DO ES NOT MEAN THAT THE NEW UNIT IS NOT A NEW UNDERTAKING. AS DISCUSSED HEREINABOVE RE GARDING THE CORRECTNESS OF THE OBSERVATION OF THE A.O THAT HCP DICOM NET AND HC P DICOM VIEWER ARE THE SAME PRODUCT WE FIND THAT IN THE CASES OF CIT VS. INDI AN ALUMINIUM CO. 108 ITR 367 (SC) AND CIT VS. ASSOCIATED CEMENT CO. LTD. 118 I TR 406 (BOMB) IT HAS BEEN HELD THAT THE NEW INDUSTRIAL UNDERTAKING FORMED BY THE ASSESSEE WAS MANUFACTURING THE SAME OLD PRODUCT AS THE OLD UNDERTAKING WAS MANUFAC TURING AND THE HONBLE COURT HAS HELD THAT THE NEW UNDERTAKING WAS ENTITLED TO THE DEDUCTION U/S. 80 I. IN THE PRESENT CASE HOWEVER WE HAVE ALREADY DISCUSSED AB OVE THAT DICOM NET AND DICOM VIEWER WERE DIFFERENT PRODUCTS. IT IS ALS O WORTH APPRECIATING THAT THE NEW PRODUCT IS NOT A DEVELOPMENT OF A DAY BUT IT IS OU TCOME OF AN ONGOING RESEARCH WORK. THUS EVEN IF IT IS ASSUMED THAT DEVELOPMEN T COST OF THE PROJECT IS DEBITED TO THE OLD UNIT ACCORDING TO THE A.O IT DOES NOT MEA N THAT THE NEW UNIT SHOULD BE DENIED THE DEDUCTION U/S. 10A. IN THE CASE OF ASS OCIATE CEMENT CO. LTD.(SUPRA) CITED ABOVE THE COMPANY ALREADY HAD THE TECHNICAL KNOWHOW FOR MANUFACTURING CEMENT AND EVEN THEN THE NEW UNIT IN WHICH THE MAN UFACTURING WAS CARRIED OUT OF CEMENT WAS HELD ENTITLED TO THE DEDUCTION U/S. 80 J. PAGE NOS. 16 & 17 OF THE ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 23 PAPER BOOK ARE THE COPIES OF INVOICES FROM WHICH IT IS APPARENT THAT THE ASSESSEE HAD SOLD THE DICOM NET WITHOUT DICOM VIEWER WH ICH INDICATES CLEARLY THAT DICOM NET WAS A DIFFERENT PRODUCT. AT PAGE NO. 179 OF THE PAPER BOOK HAS BEEN PLACED A COPY OF BILL FROM COPY RIGHT CONSULTANT FOR PROFESS IONAL FEE FOR REGISTERING COPY RIGHT OF HEART CARE PLUS AND HCP DICOM VIEWERS DATED APRIL 12 2000. THERE IS NO MENTION OF DICOM NET WHICH AS PER THE LD. A.R. WAS NOT READY BY THAT DATE AND THE ASSESSEE HAS RECEIVED THE COPYRIGHT OF DICOM NET SUBSEQUENTLY IN FEBRURY 2001. IT FINDS SUPPORT TO THE CONTENTION OF THE LD A.R. THAT THE TWO PRODUCTS DICOM VIEWER AND DICOM NET WERE NOT THE SAME. OTHE RWISE ASSESSEE WOULD NOT HAVE BEEN ABLE TO GET THE SEPARATE COPY RIGHT FOR DICO M NET. AT PAGE NO. 180 HAS BEEN PLACED COPY OF CONFIRMATION OF DR. MARDIKAR STATIN G THAT A TESTING OF DICOM NET WAS DONE IN OCTOBER 2001 IN HIS LABORATORY FOR HIS PURC HASE IN DECEMBER 2001. THE CONFIRMATION WAS SUBMITTED BY THE ASSESSEE TO REBUT THE OBSERVATION OF THE A.O THAT THE ASSESSEE HAD AN ARRANGEMENT WITH DR. MARDI AR CARDIOLOGIST AT NAGPUR FOR GIVING CONSULTING SERVICES FOR PRODUCTS AS WELL AS MARKET DEVELOPMENT AND PAID HIM THE FEE. IN VIEW OF THE ABOVE FINDINGS ON THE OBJ ECTIONS RAISED BY THE AUTHORITIES BELOW WE HOLD THAT THE AUTHORITIES BELOW WERE NO T JUSTIFIED IN DENYING THE CLAIMED DEDUCTION U/S. 10A TO THE ASSESSEE IN THE A.YS. 2 001-02 2002-03 AND 2003-04. WE THUS WHILE SETTING ASIDE ORDERS OF THE AUTHORIT IES BELOW ON THE ISSUE DIRECT THE A.O TO ALLOW THE CLAIMED DEDUCTION U/S. 10A OF THE ACT ON THE ELIGIBLE STPI UNIT. SO FAR AS CLAIM RAISED IN A.Y. 2000-01 IS CONCERNED A S WE HAVE ALREADY DISCUSSED ABOVE THAT THE STPI UNIT HAS NOT STARTED PRODUCTIO N IN THE YEAR HENCE IT IS HELD THAT IT WAS NOT ENTITLED TO THE DEDUCTION FOR A.Y. 2000-01. WE THUS UPHOLD THE ACTION OF A.O. DURING THE ASST. YEAR 2000-01 IN DENYING THE CLAIMED DEDUCTION. THE COMMON ISSUE NO. 2 IN ALL THE APPEALS IS ACCORD INGLY DECIDED. ISSUE NO. 3 ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 24 43. IN A.YS. 2001-02 AND 2002-03 THE ASSESSEE HAS QUESTIONED THE DISALLOWANCE OF CLAIMED DEPRECIATION ON ASSETS USED IN STPI UNI T. THE RELEVANT FACTS ARE THAT THE ASSESSEE HAD NOT CLAIMED DEPRECIATION ON ASSETS OF STPI UNIT IN ITS RETURN OF INCOME NOR HAD IT FILED REVISED RETURNS FOR CLAIMING THE DEPRECIATION. BEFORE THE LD CIT(A) THE ASSESSE CLAIMED THE DEPRECIATION ON THE ASSETS OF THE STPI UNIT. THE LD. CIT(A) DID NOT ALLOW THE CLAIM ON THE BASIS THAT THE ASSES SEE HAD NOT MADE THIS CLAIM IN ITS RETURN OF INCOME NOR HAD FILED ANY REVISED RETURN. IN THIS REGARD HE FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF G OETZE (INDIA) LTD. 284 ITR 323 (SC) AND HELD THAT SUCH CLAIM IS NOT PERMISSIBLE. THE LD CIT(A) HAS FURTHER STATED THAT EXPLANATION 5 TO SECTION 32 PROVIDING THAT DEP RECIATION IS COMPULSORY TO BE CLAIMED WAS INTRODUCED FROM A.Y. 2002-03 AND THER EFORE THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE. 44. BEFORE THE TRIBUNAL THE LD. A.R. SUBMITTED THA T THE ASSETS OF STPI UNITS WERE USED FOR THE PURPOSES OF BUSINESS. THERE IS NO D ISPUTE REGARDING THIS FACT. THE LD CIT(A) HAS REFERRED TO THE DECISION OF GOETZE (IND IA) LTD. (SUPRA) BUT THE SAID DECISION IS NOT APPLICABLE TO THE APPELLATE PROCEE DINGS AND LD. CIT(A) CAN ALLOW THE CLAIM EVEN IF THE ASSESSEE HAS NOT MADE SUCH CLAIM BEFORE THE A.O OR IN THE RETURN OF INCOME. HE PLACED RELIANCE ON THE DECISION OF H ONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. J. PARABOLICS SPRINGS LTD. 306 ITR 46 (DEL.). THE LD. A.R. SUBMITTED FURTHER THAT EVEN THOUGH EXPLANATION 5 WAS INTRODU CED FROM A.Y. 2003-04 STILL IT CANNOT BE HELD THAT THE ASSESSEE CAN NOT CLAIM DEPR ECIATION IF IT WAS NOT CLAIMED IN THE RETURN. SINCE ALL THE FACTS ARE ON RECORD T HE ASSESSEE SHOULD HAVE BEEN ALLOWED THE CLAIMED DEPRECIATION. 45. THE LD. D.R. ON THE OTHER HAND TRIED TO JUSTI FY THE ORDERS OF THE AUTHORITIES BELOW. ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 25 46. CONSIDERING THE ABOVE SUBMISSIONS WE FIND THAT THE MATERIAL FACT THAT ASSETS OF THE STPI UNIT WERE USED FOR THE PURPOSE OF BUSI NESS HAS NOT BEEN DISPUTED. THUS THE LD. CIT(A) WAS NOT JUSTIFIED TO DENYING THE CLAIMED DEPRECIATION ON THOSE ASSETS MERELY ON THE BASIS THAT THE ASSESSEE HAD NO T CLAIMED IT IN ITS RETURN OF INCOME NOR HAD FILED ANY REVISED RETURN IN THIS REG ARD. IT IS AN ESTABLISHED PROPOSITION OF LAW THAT JUST AND PROPER ASSESSMENT IS THE REQUIREMENT TO BE FULFILLED BY ASSESSING AUTHORITY. SO FAR AS APPLICATION OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA) IS CONCERNED NO DOUBT IT IS VERY MUCH APPLICABLE TO THE A.O BUT IT IS NOT APPLICAB E TO THE APPELLATE AUTHORITY WHICH IS DUTY BOUND TO SEE THAT JUST AND PROPER ASSESSME NT HAS BEEN MADE IN THE CASE OF AN ASSESSEE. UNDER THESE CIRCUMSTANCES WE WHILE S ETTING ASIDE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE DIRECT THE A.O TO A LLOW THE CLAIMED DEPRECIATION AS PER THE LAW. THE ISSUE IS ACCORDINGLY ALLOWED IN FAVOUR OF THE ASSESSEE. ISSUE NO. 4 47. IN A.Y. 2003-04 THE ISSUE RAISED IS AS TO WHE THER THE ASSESSEE IS ENTITLED TO CLAIMED PROJECT DEVELOPMENT EXPENDITURE OF RS. 15 88 286/-. 48. THE RELEVANT FACTS ARE THAT DURING THE YEAR TH E ASSESSEE CLAIMED TO HAVE INCURRED PRODUCT DEVELOPMENT EXPENDITURE OF RS. 15 88 286/-. THIS EXPENDITURE WAS CLAIMED TO HAVE BEEN INCURRED ON THE DEVELOPMENT OF 2 PRODUCTS NAMELY IMAGINE AND PANACEA. IN ITS RETURN OF INCOME THE ASSESS EE CLAIMED THIS EXPENDITURE AS REVENUE IN NATURE HOWEVER IN ITS BOOKS IT HAD TRE ATED THE SAID EXPENDITURE AS INTANGIBLE ASSET. THE A.O HELD THAT SAID EXPENDITU RE WAS CAPITAL IN NATURE. THE SAME HAS BEEN UPHELD BY THE LD CIT(A). ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 26 49. BEFORE THE TRIBUNAL THE LD. A.R. CONTENDED THA T THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF PUNE BENC H OF THE TRIBUNAL IN THE CASE OF RENU ELECTRONICS (P.) LTD. ITA NO. 1709 & 1604/PN/2 005 A.Y. 2002-03 ORDER DATED 30 TH APRIL 2009. 50. THE LD. D.R. ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE. 51. HAVING GONE THROUGH THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF RENU ELECTRONICS PVT. LTD. VS. DCIT & VICE VERS A (SUPRA) WE FIND THAT IN THAT CASE ASSESSEE HAD INCURRED PRODUCT DEVELOPMENT EX PENDITURE ON DEVELOPMENT OF NEW TYPES OF PRODUCTS. THE TRIBUNAL FOLLOWING SEVE RAL DECISIONS CITED BEFORE IT INCLUDING DECISIONS IN THE CASES OF KEDARNATH JUTE MANUFACTURING CO. LTD. VS. CIT (1971) 82 ITR 363 (SC) ACIT VS. MEDICAMEN BIOTECH LTD. (2006) 99 TTJ (DEL.) 873 CIT VS. SAKTHI SOYAS LTD. (2008) 283 ITR 193 (MAD.) HAS HELD THAT THE EXPENDITURE INCURRED ON DEVELOPMENT OF NEW PRODUCT WAS A REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE. FACTS OF THE PRESENT CASE BEFORE US ARE ALMOST SIMILAR AS IN THE PRESENT CASE ALSO THE ASSESSEE HAS INCURR ED EXPENDITURE ON THE DEVELOPMENT OF TWO NEW PRODUCTS NAMELY IMAGINE AND PANACEA AND HAS CLAIMED THE SAME AS REVENUE EXPENDITURE IN ITS RETU RNED INCOME. WE THUS RESPECTFULLY FOLLOWING THE CITED DECISION IN THE CA SE OF RENU ELECTRONICS PVT. LTD. (SUPRA) HOLD THAT THE ASSESSEE IS ENTITLED TO THE C LAIMED PRODUCT DEVELOPMENT EXPENDITURE AS REVENUE EXPENDITURE. THE A.O IS ACC ORDINGLY DIRECTED TO ALLOW THE SAME. THE ISSUE IS THUS ALLOWED IN FAVOUR OF THE ASSESSEE. 52. IN RESULT ITA NO. 955/PN/2008 (A.Y. 2000-01) IS DISMISSED; ITA NO. 417/PN/2008 IS PARTLY ALLOWED; ITA NO. 418/PN/2008 ( A.Y. 2002-03); ITA NO. 419/PN/2008 (A.Y. 2003-04) AND ITA NO. 956/PN/2008 (A.Y. 2005-06) ARE ALLOWED. ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 27 C.O. NOS. 77 TO 80/PN/2011 53. IN THESE CROSS OBJECTIONS THE REVENUE HAS RAI SED FOLLOWING COMMON OBJECTION : 1. IN CASE THE HONBLE MEMBERS OF ITAT PUNE DECID E THAT IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT(A) H AS ERRED IN UPHOLDING THE DISALLOWANCE OF DEDUCTION U/S 10A AND HOLD THAT T HE STPI UNIT OF THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 10A BEING AN INDEPENDENT UNIT; SUCH DEDUCTION BE RESTRICTED TO THE AMOUNT OF TOTAL INC OME AVAILABLE TO THE ASSESSEE AS COMPUTED UNDER THE PROVISIONS OF THE I T ACT 1961 FOR ALLOWING DEDUCTION U/S 10A. 54. AS IT IS CLEAR FROM THE ABOVE OBJECTION THAT TH E CROSS OBJECTIONS HAVE BEEN PREFERRED ON THE PRESUMPTION THAT IN CASE THE TRIB UNAL DECIDES THAT THE LD CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF DEDUCTI ON U/S. 10A AND HOLDS THAT THE STPI UNIT IS ELIGIBLE FOR DEDUCTION U/S. 10A BEING AN INDEPENDENT UNIT SUCH DEDUCTION BE RESTRICTED TO THE AMOUNT OF TOTAL INC OME AVAILABLE TO THE ASSESSEE AS COMPUTED UNDER THE PROVISIONS OF I.T. ACT 1961 FOR ALLOWING DEDUCTION U/S. 10A OF THE ACT. 55. ALONG WITH THESE CROSS-OBJECTIONS THE REVENUE HAS ALSO MOVED AN APPLICATION FOR CONDONATION OF DELAY FOR PREFERRING THE CROSS OBJECTIONS. THE REASON SHOWN IS THAT IN THE MONTH OF NOVEMBER 2011 ONLY THE REVENUE CAME TO KNOW THAT ASSESSEE IS IN APPEAL BEFORE THE TRIBUN AL PUNE. SINCE NO SERIOUS OPPOSITION HAS BEEN RAISED BY THE LD. A.R. WE CON DONE THE DELAY AND ALLOW ADJUDICATION OF THESE CROSS OBJECTIONS TO MEET THE END OF JUSTICE ON ITS MERITS. 55.1. SO FAR AS CROSS-OBJECTIONS FOR THE A.Y. 20 00-01 IS CONCERNED THE LD. D.R. WISHED TO WITHDRAW THE SAME. THE SAME IS THUS DIS MISSED AS WITHDRAWN. ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 28 56. WE HAVE ALREADY DECIDED THE ISSUE OF ELIGIBILIT Y OF DEDUCTION U/S. 10A TO THE STPI UNIT IN ITS FAVOUR IN THE APPEALS PREFERRED BY THE ASSESSEE EXCEPT IN THE APPEAL FOR THE A.Y. 2000-01 IN WHICH YEAR THE UNIT DID NO T START ITS PRODUCTION. THE OBJECTION RAISED BY THE REVENUE IS JUST AND FAIR H ENCE WE ALLOW THE SAME WITH DIRECTION TO THE A.O. THAT THE ALLOWABILITY OF DED UCTION U/S. 10A IN THE A.YS. IN QUESTION EXCEPT A.Y. 2000-01 BE RESTRICTED TO THE AMOUNTS OF TOTAL INCOME AVAILABLE TO THE ASSESSEE AS COMPUTED UNDER THE PR OVISIONS OF I.T. ACT 1961 IN VIEW OF OUR ABOVE FINDINGS ON ISSUE NO. 2.. THE CR OSS OBJECTIONS FOR A.Y. 2000-01 IS DISMISSED AND REMAINING CROSS OBJECTIONS ARE ACCOR DINGLY ALLOWED FOR STATISTICAL PURPOSES. 57. IN SUMMARY ITA NO. 995/PN/2008 (A.Y. 2000-01) I S DISMISSED ITA NO. 417/PN/2008 (A.Y. 2001-02) IS PARTLY ALLOWED AND IT A NOS. 418/PN/2008 (A.Y. 2002-03) 419/PN/2008 (A.Y. 2003-04) AND ITA NO. 9 56/PN/2008 ( A.Y. 2005-06) ARE ALLOWED. C.O. NO. 77/PN/2011 IS DISMISSED AND REMAINING ARE ALLOWED FOR STATISTICAL PURPOSES.. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14TH FEBRUARY 2012 SD/- SD/- (D. KARUNAKARA RAO) (I.C. SUDHIR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED THE 14TH FEBRUARY 2012 US COPY OF THE ORDER IS FORWARDED TO : ITA . NOS 417 TO 419/PN/2008 ETC. & C.O. NOS. 77 TO 81/PN/2011 SOFTLINK INTERNATIONAL PVT. LTD. A.YS.2000-01 TO 2005-06 PAGE OF 29 29 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT -III PUNE 4. THE CIT(A)-II PUNE 4. THE D.R. A BENCH PUNE 5. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE