Income Tax Appellate Tribunal - Mumbai
Digitise India P. Ltd, Mumbai vs Department Of Income Tax on 12 September, 2014
ुं ई यायपीठ "डी" मब
आयकर अपील य अ धकरण, मब ुं ई
IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM)
सव ी बी.आर.बा करन, लेखा सद य एवं ी संजय गग, या यक सद य के सम
आयकर अपील सं./I.T.A. No.4485 and 4486/Mum/2011
( नधारण वष / Assessment Year : 2006-07 and 2007-08)
Income Tax Officer 1(1)(2) बनाम/ M/s Digitise IT (India) Pvt. Ltd.,
Room No.579, Aayakar Bhavan, Vs. 6, St. James Court,
M K Road, Mumbai-400020. 206, Marine Drive,
Mumbai-400002
(अपीलाथ /Appellant) .. ( यथ / Respondent)
आयकर अपील सं./I.T.A. No.6875 and 6877/Mum/2011
( नधारण वष / Assessment Years : 2005-06 & 2008-09)
Asstt. Commissioner of Income बनाम/ M/s Digitise IT (India) Pvt. Ltd.,
Tax-1(1), Vs. 6, St. James Court, 206, Marine Drive,
Room No.579, Aayakar Bhavan, Mumbai-400002
M K Road, Mumbai-400020.
(अपीलाथ /Appellant) .. ( यथ / Respondent)
थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. : AABCD1860F
अपीलाथ ओर से / Revenue by : Shri Durga Dutt
यथ क ओर से/Assessee by : Shri Niraj Sheth
सन
ु वाई क तार ख / Date of Hearing : 17.7.2014
घोषणा क तार ख /Date of Pronouncement : 12.9.2014
आदे श / O R D E R
Per B.R.BASKARAN, Accountant Member:
All the four appeals, filed at the instance of the Revenue, are directed against the orders passed by Ld CIT(A)-I, Mumbai and they relate to the assessment years 2005-06 to 2008-09. Since identical issues are agitated in these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience.
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2. The common issue urged in all the four appeals relates to the eligibility of the assessee to claim deduction u/s 10A of the Act.
3. The facts relating to the above said issue are discussed in brief. The assessee company was incorporated on 24.4.2000 and is engaged in the business of Scanning, converting, digitalizing, collating, storing, transferring, sorting and modifying documents /data/ drawings into electronic format. It obtained Software Technology Part (STP) registration from 16.6.2004. Hence, the assessee company started claiming deduction u/s 10A of the Act from assessment year 2005-06 onwards, i.e., from the year in which it obtained registration as STP. The AO held that the assessee is not eligible for deduction u/s 10A of the Act for the following reasons:-
(a) The assessee is not a new undertaking, i.e., the assessee is carrying out its activity since AY 2001-02.
(b) It has not set up any separate or new unit after getting registration as Software Technology Park. It has continued to use old business set up after getting STP registration also.
(c) As per the agreement entered with STP authorities, the unit was supposed to be 100% export oriented unit. But the assessee has not set up any separate NEW unit.
(d) Merely registering with Software Technology Park does not entitle the assessee to get deduction u/s 10A.
(e) Assessee has not demarcated the eligible undertaking and non-eligible undertaking.
(f) Assessee has utilized old plant and machinery, which were used previously, in excess of 20% of the total plant and machinery used in the business.
(g) The assessee has not brought into India the total sales proceeds in convertible foreign exchange on or before 30.09 of the relevant year.
Accordingly, the AO rejected the claim of deduction u/s 10A of the Act made by the assessee in all the four years under consideration.
4. In the appellate proceedings, the Ld CIT(A) held that the assessee is eligible for deduction u/s 10A of the Act and accordingly reversed the decision of 3 I.T.A. No.4485 and 4486/Mum/2011 I.T.A. No.6875 and 6877/Mum/2011 the AO in all the four years. Aggrieved, the revenue has filed these appeals before us.
5. We have heard the parties and perused the record. The main reason on which the AO has rejected the claim for deduction u/s 10A was that the assessee has not set up a new unit after obtaining registration as Software Technology Park. Since the assessee has obtained STP registration for the existing unit, it amounts to using of old Plant and machinery. We notice that the Ld CIT(A) has placed reliance on the Circular No. 1 of 2005 issued by the CBDT in the context of deduction u/s 10B of the Act, wherein it was clarified that an undertaking set up in Domestic Tariff Area (DTA) and deriving profit from export of Computer Software manufactured or produced by it, which is subsequently converted into EOU, shall be eligible for deduction u/s 10B of the Act on getting approval as 100% Export Oriented Undertaking. It was further clarified that the deduction, in such type of cases, shall be available only from the year in which it has got the approval as 100% EOU and shall be available only for the remaining period.
6. According to the assessee herein, it has started claiming deduction u/s 10A of the Act only for the period commencing from the date of approval as STP. The Ld CIT(A) has accepted the contention of the assessee that the ratio of the Circular No.1 of 2005 (referred supra) shall equally apply to the deduction claimed u/s 10A of the Act. However, the contention of the Ld D.R is that the Circular (referred supra) was issued in the context of deduction allowable u/s 10B of the Act and hence the said circular shall not have application to the deduction claimed u/s 10A of the Act.
7. Thus, the contentions of the Ld D.R are that the assessee, in order to become eligible for deduction u/s 10A of the Act, should have set up a NEW unit and should not have brought in old Plant and Machinery in excess of 20% of total value. Since the assessee has continued to carry on the business in the existing unit, according to Ld D.R the assessee is not eligible for deduction u/s 10A of the Act.
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8. Before us, the Ld A.R placed reliance on the following case law to contend that the deduction u/s 10A is available to the existing unit also from the date of obtaining approval as STP.
(a) CIT Vs. EDS Electronics Data Systems (India) (P) Ltd (2013) (89 DTR (Del) 182)
(b) Nagesh Chundur Vs. CIT (2013)(358 ITR 521)(Mad)
(c) CIT Vs. Maxim India Integrated Circuit Design (P) Ltd (2011)(202 Taxman365)(Kar)
(d) CIT Vs. Expert Outsource (P) Ltd (2011)(59 DTR 86).
9. We have gone through the above said decisions. We notice that the facts prevailing in the instant case are identical with the facts prevailing in the case of Nagesh Chundur (supra) considered by Hon'ble Madras High Court. In the said case, the assessee therein was in business from 1994 onwards. It was approved as STP by Government of India (as 100% Export oriented unit for computer software) on 27.3.2002. The assessee claimed deduction u/s 10A of the Act for AY 2003-04. The ITAT allowed the claim of the assessee by following the decision of Hon'ble Karnataka High Court in the case of Expert Outsource (P) Ltd (supra). The Hon'ble Madras High Court upheld the view taken by the Tribunal with the following observations:-
"11. Leaving this aside, in considering the claim of the assessee, the Income Tax Appellate Tribunal pointed out to the decision of the Karnataka High Court in the case of CIT v. Expert Outsource (P.) Ltd. [2012] 20 taxmann.com 481, wherein, the Karnataka High Court held that the purpose of the Software Technology Park scheme was to encourage exports and gain valuable foreign exchange for the country; even though the assessee had begun operations on 17.12.2003, it had its registration on 04.08.2004; that the Software Technology Park authorities could also permit the conversion of an existing unit into a STPI unit. Thus, based on the decision of the Karnataka High Court, the Income Tax Appellate Tribunal allowed the assessee's claim, that, the fact of the assessee being in the business prior to the date of the registration of the STPI would not stand in the way of granting relief to the assessee.
12. Learned Standing counsel appearing for the Revenue took us through the provisions under Section 10A of the Act and Section 10B of the Act and submitted that the reliance placed on by the assessee on the decision of the Karnataka High Court has no relevance, because it operated on a different field; the relief under Section 10A of the Act has to be seen in the context of the provisions contained therein.
13. Reiterating the stand taken before the Income Tax Appellate Tribunal as well as the order passed against the assessee in the course of assessment proceedings, learned Standing counsel appearing for the 5 I.T.A. No.4485 and 4486/Mum/2011 I.T.A. No.6875 and 6877/Mum/2011 Revenue submitted that the admitted fact is that the assessee commenced its business even before the date of registration i.e., on 27.03.2002 and when the Section contemplates deduction only in respect of industries which have commenced production after the dates mentioned in Section 10A(2) of the Act and registered as Technology Park from therein, the claim of the assessee could not be sustained as per the provisions contained in Section 10A of the Act.
14. In short, the contention of the Revenue is that the assessee, which is already in existence cannot take the benefit of Section 10A of the Act and only such of those assessees, who have commenced production with the registration as Software Technology Park as given therein under Section 10A(2) of the Act alone can claim to benefit of Section 10A of the Act. Consequently, according to the learned Standing counsel appearing for the Revenue, the Income Tax Appellate Tribunal committed serious error in applying the decision of the Karnataka High Court in the case of Expert Outsource (P) Ltd. (supra).
15. We do not agree with the said line of reasoning of learned Standing counsel appearing for the Revenue. At the outset, we may say that we are in respectful agreement with the Karnataka High Court decision in the case of Expert Outsource (P) Ltd. (supra). Pointing out to the purpose of the STP scheme to encourage exports and gain valuable foreign exchange for the country, the Karnataka High Court held that "The STP scheme provides the benefit of converting a DTA unit into a STPI unit and the same should also hold good for tax purposes." Referring to Circular No.1 of 2005 dated 06.01.2005, the Karnataka High Court pointed out that the said Circular grants certain benefits under Section 10B of the Act; though this was in the context of Section 10B of the Act, the ratio of the Circular No.1 of 2005 dated 06.01.2005 would apply to Section 10A of the Act too. Thus it held that the mere fact that the assessee was in existence prior to its date of registration on 04.08.2004 as Software Technology Park would not disentitle the assessee from claiming deduction under Section 10A of the Act.
16. As far as the present case is concerned, there is no denial of the fact that the assessee is in business right from 1999-2000. It got its registration as STPI on 27.03.2002. The Department accepted the claim of the assessee for two assessment years 2003-04 and 2004-05 and the assessment had become final. It is not as though the facts relating to the assessee's existence prior to its registration on 27.03.2002 is not a fact that the Department did not know and by mistake it allowed the benefit for the year 2003-04 and 2004-2005.
In the circumstances, with the orders thus becoming final, principally stating, we do not find any justifiable ground for the Revenue to question the claim of the assessee from the assessment year 2005-06.
17. Even otherwise, we find that the claim of the Revenue could not be sustained. The provisions contained in Section 10A of the Act grants 100% deduction on profits and gains derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to 6 I.T.A. No.4485 and 4486/Mum/2011 I.T.A. No.6875 and 6877/Mum/2011 manufacture or produce such articles or things or computer software. Section 10A(2) of the Act refers to the undertaking which are entitled to the benefit of Section 10A of the Act. The Section reads as under:--
"Section 10A(2):-- This Section applies to any undertaking which fulfils all the following conditions, namely :--
(i) it has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year --
(a) commencing on or after the 1st day of April, 1981, in any free trade zone; or
(b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park, or, as the case may be, software technology park;
(c) commencing on or after the 1st day of April, 2001 in any special economic zone;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence :
Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertakings as is referred to in section 33B, in the circumstances and within the period specified in that section;
(iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose."
Explanation 2-(vii) defines Software Technology Park as follows:--
"(vii) "software technology park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry."
A reading of the provisions referred to above point out that the Section grants 100% deduction to an undertaking, which has begun or begins to manufacture or produce articles or things or computer software as per Sub clause (i) of Sub Section 2 of Section 10A of the Act. The dates mentioned therein show the conditions regarding the year of manufacture for the purpose of reckoning the exemption/ deduction for ten consecutive years with reference to the undertaking set up in different locations viz., for the industries in free trade zone, units in electronic hardware technology park or software technology park, units in special economic zone. The second requirement under Sub Section 2 of Section 10A of the Act is that it is not formed by splitting up or the reconstruction of a business already in existence and Sub clause (iii) of Sub Section 2 of Section 10A of the Act states that it is not formed by the transfer of machinery or plant previously used for any purpose to a new business.
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18. As far as the present case is concerned, the assessee is in Software Technology Park. The assessee took advantage of the scheme notified by the Government of India in the Ministry of Commerce and Industry of the "software technology park" and sought for registration as STPI on 2002. In so getting the registration, the question that arises for consideration is as to whether the claim of the assessee would be covered by Clause (b) of Sub clause (i) of Sub Section 2 of Section 10A of the Act. A reading of the above Sub Section shows that in order to claim deduction, an undertaking in hardware technology park or software technology park must be in existence commencing its production on or after the 1st day of April, 1994. Given the fact that the assessee is not formed by splitting up or transfer to a new business and got registration even since 2002, the fact that it has been in existence ever since 1999, does not militate against the applicability of Section 10A of the Act. The case on hand falls under Section 10A(2)(b) of the Act. As already pointed out, even the cursory reading of Section 10A(2)(i) of the Act shows that it has relevance to industry that has begun to manufacture or produce articles or things or computer software on or after the 1st day of April, 1994. Thus, the moment the assessee satisfies this clause and it goes for the second requirement namely, registration as a Software Technology Park in accordance with the scheme of Government of India, the assessee stands benefited by the provisions of Section 10A of the Act.
19. Learned Standing counsel appearing for the Revenue however pointed out to the second proviso to Section 10A(1) of the Act and submitted that the Section will have relevance to the industry.
20. We do not think it so. The second proviso to Section 10A(1) of the Act states that where the undertaking located in any free trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free trade zone or export processing zone into a special economic zone, the period of ten consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which it had started manufacture or produce such articles or things or computer software in the free trade zone or the export processing zone or otherwise, and clarifies that the benefit would continued to be available to the balance of period available to the free trade zone which has been subsequently got converted into special economic zone.
21. Given the scope of the scheme formulated by the Government of India, Ministry of Commerce and Industry in locating the Software Technology Park, which either may be done by the Government itself or by the individual unit, we do not find any conditions in the Section, throwing the assessee out of benefit of Section 10A of the Act solely by reason of it being in existence already but became STPI subsequently. In the circumstances, we have no hesitation in rejecting the Revenue's appeal, thereby confirming the order of the Income Tax Appellate Tribunal."
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10. Since the view taken by the Ld CIT(A) is in accordance with the view expressed by Hon'ble Madras High Court in the case of Nagesh Chundur (supra), we do not find any reason to interfere with his order on this issue. Accordingly, we uphold the order of Ld CIT(A) on this issue.
11. In AY 2008-09, the revenue is agitating on one more issue, viz., the Ld CIT(A) was not justified in deleting the addition of Rs.29,75,853/- relating to Work in Progress. The facts relating to the same are discussed in brief. The AO noticed that the assessee did not disclose any "Work in Progress" in its Profit and Loss account even though it claimed operating expenses to the tune of Rs.2,29,16,769/-. The AO further noticed that the assessee has raised invoices to the extent of Rs.29,75,853/- on 30.4.2008, i.e., during the first month of succeeding year. Hence, the AO took the view that the expenses relating to the above said invoices would have been incurred during the year under consideration. Accordingly he treated the above said amount of Rs.29,75,853/- as "Work in progress" as on 31.3.2008 and added the same to the total income of the assessee.
12. Before Ld CIT(A), the assessee contended that the work of digitization does not involve more than 4 hours of work and almost all the work are completed within 12 hours. Accordingly, it was contended that the AO was not justified in presuming that the work relating to the bills raised on 30.4.2008 was done in March 2008. It was also contended that the AO has made the impugned addition without calling for explanations from the assessee.
13. The Ld CIT(A) accepted the above said contentions and accordingly directed the AO to delete the addition. The Ld CIT(A) also noted that his predecessor has considered identical issues in AY 2006-07 and 2007-08 and has deleted identical additions made in those years. The revenue is aggrieved by the said decision of Ld CIT(A).
14. According to revenue, the AO did not make any such addition in AY 2006- 07 and 2007-08 and hence there was no occasion for the Ld CIT(A) to consider those issues in the above said two years. We have also gone through the order passed by Ld CIT(A) in AY 2006-07 and 2007-08 and we find that the Ld CIT(A) 9 I.T.A. No.4485 and 4486/Mum/2011 I.T.A. No.6875 and 6877/Mum/2011 did not adjudicate any such issue in those years. Hence, we find merit in the contentions of the revenue. Further we notice that the Ld CIT(A) has accepted the contentions of the assessee that the work is normally completed within 12 years without causing any verification of the said claim. Further, it is also the contention of the assessee before Ld CIT(A) that the assessing officer has made the impugned addition without providing an opportunity to the assessee. Under these circumstances, in our view, this issue requires fresh examination at the end of the AO. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the Assessing Officer with the direction to examine this issue afresh after affording necessary opportunity of being heard to the assessee and decide the same in accordance with the law.
15. In the result, the appeals filed by the revenue for AY 2005-06 to 2007-08 are dismissed and the appeal filed for AY 2008-09 is treated as partly allowed for statistical purposes.
The above order was pronounced in the open court on 12th Sept Aug, 2014.
घोषणा खुले यायालय म दनांकः 12th Sept, 2014 को क गई ।
Sd sd
(संजय गग /SANJAY GARG) ( बी.आर.बा करन / B.R. BASKARAN)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मब
ुं ई Mumbai: 12th Sept,2014.
व. न.स./ SRL , Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु त(अपील) / The CIT(A)- concerned
4. आयकर आयु त / CIT concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मब
ुं ई /
DR, ITAT, Mumbai concerned
6. गाड फाईल / Guard file.
आदे शानस
ु ार/ BY ORDER,
True copy
सहायक पंजीकार (Asstt. Registrar)
आयकर अपील य अ धकरण, मंब
ु ई /ITAT, Mumbai