Income Tax Appellate Tribunal - Delhi
Hcl Technologies Ltd, New Delhi vs Assessee on 28 October, 2010
1 ITA No. 5623.Del.2010
THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: ' C' NEW DELHI
BEFORE SHRI S.V.MEHROTRA, ACCOUNTANT MEMBER
AND
SMT DIVA SINGH, JUDICIAL MEMBER
I.T.A .No.-5623/Del/2010
(ASSESSMENT YEAR-2005-06)
HCL Technologies Limited, ACIT,
806, Siddhartha 96, Central Circle-2, Room No-323,
Nehru Place, vs 3rd Floor, E-2, ARA Center,
New Delhi-110002. Jahndewalan Ext., New Delhi.
PAN-AAACH1645P
(APPELLANT) (RESPONDENT)
Appellant by Sh. Ajay Vohra, Adv.,
Sh. Neeraj Jain
Sh. Upvan Gupta, CA
Respondent by Sh.G.C.Srivastav, Adv.,
Sh. Saurabh Srivastav, CA
ORDER
PER DIVA SINGH, JM
This is an appeal filed by the assessee against the order dated 28.10.2010 passed by the TO u/s 143(3) r.w.s 144C (13)of the Income Tax Act, 1961 pertaining to 2005-06 assessment year on the following grounds:-
1. That the Assessing Officer erred on facts and in law in completing the impugned assessment under Section 143 (3) of the Income Tax Act, 1961 ("the Act") read with Section 144C (13) of the Act at an income of Rs.56,53,95,072 as against the income of Rs.1,17,48,138 returned by the appellant.
2. That the Assessing Officer erred on facts and in law in completing the impugned assessment proceedings on the basis of original return of income by arbitrarily ignoring the revised return filed by the appellant.
3. That the Assessing Officer erred on facts and in law in arbitrarily denying deduction claimed in the revised return of income under Section 10A of the Act in 2 ITA No. 5623.Del.2010 respect of the profits derived from the various undertakings owned by the appellant in the complete disregard of actual facts and circumstances. 3.1. That the Assessing Officer erred on facts and in law in drawing an adverse inference regarding the eligibility of the various undertakings owned by the appellant, for the purpose of claiming deduction under Section 10A of the Act without considering all the documentary evidence placed on record in support of the claim.
3.2. That the Assessing Officer erred on facts and in law in denying deduction under Section 10A of the Act in respect of the profits derived from the various undertakings owned by the appellant alleging that (a) the original 13 undertakings (as per the original return of income) were split into 31 undertakings by the appellant in the revised return of income (b) no separate license was obtained by the appellant from STPI Authorities in respect of these undertakings (c) that deduction in respect of these undertakings was deliberately not claimed by the appellant in the initial years and (d) no books of account have been produced by the appellant.
3.3. That the Assessing Officer erred on facts and in law in drawing an adverse inference regarding the independent and separate nature of the undertakings owned by the appellant not appreciating that each of such undertaking of the appellant is an independent viable unit registered with STPI Authorities and were eligible for deduction under section 10A of the Act.
3.4. That the Assessing Officer erred on facts and in law in arbitrarily concluding that the ratio of the decision of the Hon'ble apex court in the case of Textile Machinery Corporation Ltd. vs. CIT [107 ITR 195] (SC) is not applicable in the case of the appellant without considering the actual facts and circumstances and also overlooking the necessary evidence filed by the appellant in the course of impugned assessment proceedings in support of new and independent nature of undertakings owned by the appellant.
3.5. That the Assessing Officer erred on facts and in law in not appreciating that Section 10A of the Act is a complete code in itself and only those conditions which are prescribed by Section 10A of the Act are liable to be fulfilled by an undertaking for being eligible for the purpose of deduction under Section 10A of the Act. 3.6. That the Assessing Officer erred on facts and in law in arbitrarily concluding that the different undertakings covered under a single STPI License represent a single undertaking with multiple locations in the complete disregard of the certificate issued by the Chennai STPI Authorities upon the request made by the appellant to the said authorities.
3.7. That the Assessing Officer erred on facts and in law in observing, without appreciating the contention of the appellant, that if one is to go by the contention of the assessee that each and every location should be treated as a separate undertaking then the number of undertakings eligible for deduction under Section 10A would have more than 31 number of undertakings as claimed by the appellant in the revised return of income.
3.8. That the Assessing Officer erred on facts and in law in concluding that it was not possible for him to verify whether all the undertakings were set-up with substantial new investment despite the fact that he himself has observed that there 3 ITA No. 5623.Del.2010 was no dispute regarding the setting up of each undertaking with substantial new investment.
3.9. That the Assessing Officer erred on facts and in law in drawing an adverse inference regarding the fulfillment of condition of setting up of each undertaking with substantial new investment without considering the details of capital investment made by each undertaking and the necessary evidence in support thereof fled by the appellant in the course of impugned assessment proceedings.
3.10. That the Assessing Officer erred on facts and in law in concluding that the undertakings owned by the appellant do not represent new undertakings despite the fact that these undertakings have separate identifiable work force. 3.11. That the Assessing Officer erred on facts and in law in concluding that the undertakings owned by the appellant do not represent new undertakings despite the fact that these undertakings were clearly engaged in newer and different technology areas.
3.12. That the Assessing Officer erred on facts and in law in drawing an adverse inference regarding the newer nature of the projects executed by each undertaking in the complete disregard of facts and circumstances and even without considering the evidence filed by the appellant in the course of impugned assessment proceedings.
3.18. That the Assessing Officer erred on facts and in law in discharging his statutory obligation to rebut all the judicial pronouncements relied upon in support of claiming of deduction under Section 10A of the Act.
3.19. That the Hon'ble Dispute Resolution Panel ("DRP") erred on facts and also in law in arbitrarily upholding the proposed action of the assessing officer of drawing adverse inference regarding the eligibility of the some of the undertakings to separately claim deduction under Section 10A of the Act even without considering all the facts and evidence on record.
4. That the Assessing Officer erred on facts and in law in arbitrarily concluding that 60% of the aggregate amount of expenses incurred by the appellant in the convertible foreign exchange during the year under consideration was incurred in connection with technical services rendered by the appellant. 4.1. That the assessing officer erred on facts and in law in making the reduction of expenses incurred by the appellant in the convertible foreign exchange from "export turnover" following the assessment order for assessment year 2004-05, without appreciating that the said issue has already been decided by the Hon'ble ITA T in favor of the appellant for the Assessment Year 2004-05 and even the departmental appeal against the said order of the ITAT has been rejected by the Hon'ble Delhi High Court.
4.2. Without prejudice and in the alternative, the assessing officer erred in not excluding the expenses incurred by the appellant in the convertible foreign exchange from 'total turnover' while reducing these from 'export turnover' for calculation of deduction u/s 10A leading to absurd results. 4.3. That the Hon'ble DRP erred on facts and in law in upholding the proposed action of the learned AO of reduction of expenses incurred by the appellant from"4 ITA No. 5623.Del.2010
export turnover" for computing deduction under section 1 OA of the Act by merely observing that the said issue is under litigation.
5. That the assessing officer erred on facts and in law in reducing link charges attributable to delivery of computer software outside India from "the export turnover" in terms of clause (iv) of Explanation 2 of Section 10A of the Act, without making the similar adjustment from" the total turnover" resulting into absurd and unintended results.
5.1. That the assessing officer erred on facts and in law in making the reduction of link charges incurred by the appellant from "export turnover" without making the corresponding adjustment from "total turnover" following the assessment order for assessment year 2004-05, without appreciating that the said issue has already been decided by the Hon'ble ITAT in favor of the appellant for theAssessmentYear2004- 05 and even the departmental appeal against the said order of the ITAT has been rejected by the Hon'ble Delhi High Court. 5.2. That the Hon'ble DRP erred on facts and in law in upholding the proposed action of the learned AO of reduction of expenses incurred by the appellant from "export turnover" for computing deduction under section 10A of the Act without making the corresponding adjustment from the "total turnover" by merely observing that the said issue is under litigation.
6. That the assessing officer erred on facts and in law in enhancing the expenditure disallowable under section 14A of the Act to Rs.l,05,07,741 from Rs,44,55,082 disallowed by the assessee in respect of exempt income applying rule 80 of the Income-tax Rules.
6.1. Without prejudice that the Assessing Officer erred on facts and in law in that Rule 80 does not have retrospective application and could not be applied during the relevant previous year.
6.2. That the Hon'ble DRP erred on facts and in law in upholding the proposed action of the learned AO of disallowing further amount u/s 14A r/w Rule 8D.
7. That the Assessing Officer erred on facts and in law in disallowing depreciation to the extent of Rs.5,84,704 on electrical installation holding the same to be eligible for depreciation @ 15% as opposed to 25% applicable to plant and machinery.
7.1. That the Hon'ble DRP erred on facts and in law in upholding the proposed action of the learned AO of disallowing the depreciation on electric installation
8. That the Assessing Officer erred on facts and in law in not allowing deduction of Rs.620,012 being expenses incurred wholly and exclusively for earning the income included under the head "Income from other sources", (claimed in the revised return of income), in terms of section 58(iii) of the Act, disregarding the direction issued by the Hon'ble DRP.
9. That the Assessing Officer erred on facts and in law in charging interest under section 234B and 2340 of the Income Tax Act, 1961. The appellant craves leave to add, to alter, to amend or vary from the aforesaid grounds of appeal at or before the time of hearing."5 ITA No. 5623.Del.2010
2. The relevant facts of the case are that the assessee by way of a return dated 31.10.2005 declared an income of Rs.18,95,23,990/-. Subsequently a revised return was filed on 30.03.2007 declaring an income of Rs.1,17,48,138/-. The assessee in the year under consideration as in earlier year was engaged in the business of development and export of computer software and rendering technical services. The case was taken up for scrutiny by way of issuance of notice u/s 143(2) alongwith questionnaire etc. 2.1 A perusal of the assessment order dated 26.12.2008 shows that in the original return filed the assessee had shown gross income from business at Rs.258,17,15,909/- and claimed deduction u/s 10A of the Income Tax Act of Rs.257,24,87,070/- and business income had been shown at Rs.92,28,838/-. In the revised return it was observed by the AO that whereas gross income from business and profession remained the same however deduction u/s 10A had been claimed at Rs.275,57,24,990/- and loss from business & profession had been shown at Rs.16,79,29,000/-. Taking into consideration the fact that both the claims u/s 10A in the original return and also in the revised return were supported by 13 and 31 separate Forms 56F respectively duly certified by a Chartered Accountant, he was of the view that in the said background the basic question which arose for consideration was whether the units for whom separate Form 56F had been filed in the revised return could be treated as a separate unit for the purposes of section 10A or not. 2.2. Referring to the fact that till the filing of the revised return, the assessee had all along claimed benefit u/s 10A on the basis of license which were now sought to be changed, he was of the view that the additional units had been formed after the splitting up of the existing 13 units into different units for which fresh and new Form-56F were being filed. The position was summarized by way of a chart by the AO in para 4.3 in the following manner:-
Name of the Unit (as per the Original No. of units split into 6 ITA No. 5623.Del.2010 Return) Chennai 1 8 Chennai 2 5 Chennai 3 4 Chennai 4 Not Split Noida 1 6 Noida 2 Not in the Revised Return Noida 3 Not Split Noida 4 Not Split Kolkata Not in the Revised Return Bangalore 2 PSO 1 Not Split PSO 2 Not Split PSO 3 Not Split 2.3. Considering the documentation and making a comparison of the Form 56F filed alongwith the original and the revised return, he observed that in majority of the cases the original units had been split up into different units and a separate Form-
56F had been filed for each & every split unit thereby treating each split unit as a separate unit for the purposes of claiming the benefit u/s 10A. As an illustration, he considered that in the original return a single Form-56F had been filed for a unit called STP 1 Chennai with its address as "J-16, Anna Nagar, Chennai" however in the revised return different addresses had been mentioned for the 8 units. This position was found to exist in all the other split units.
2.4. He also found that when the two returns filed, namely original return and the revised return there were differences in the dates of Registration and dates of commencement of the Single Unit as mentioned in the Form 56 filed along with the Original Return and the dates of the Split Units as mentioned in the Form 56 filed along with the Revised Return. For example the AO quotes that in the case of STP I, Chennai (the same unit as above), the date of registration and the date of commencement (as mentioned in the Form 56 filed along with the Original Return) were as follows:-
Registration : 26/12/94
7 ITA No. 5623.Del.2010
Commencement: 01/04/95
2.5. In the revised return the 8 units which were formed by splitting STP 1 Chennai the dates were found to be different for registration and commencement of the units. As a result of this difference, he was of the view the time period for which the benefit u/s 10A available was extended. This position he notes is specially visible in the case of STP Chennai-I, Noida-1 and PSO, Noida all of which were in their 10th (last) year of claiming the benefit as per the original Return but now have different years of claim in the split units.
2.6. The resultant position with respect to the 8 units formed by splitting STP Chennai-1 as per the Revised Return was summarized in the following manner:-
Address OF THE Split Unit Year of claim u/s 10A 168, Arcot Road, Vadapalani, Chennai 26; 5th 49-50 Nelson Manickam Road, Chennai 29; 8th 602, Tidel Park, 4 Canal bank Road, 4th Chennai 113 D 12 and 12B, SIDCO industrial Estate, 7th Ambattur, Chennai-58 J-16, Anna Nagar, Chennai-102 10th No.-50-53, Greams Road, Chennai 6 9th PM Towers, No.-37, Greams Road, hennai-6 5th Sapna Trade Centre, 110 P.H.Road, 5th Chennai-84. 2.7 The AO held that this action not only impacted the result by extending the
benefit of the tax holiday, but also impacted the amount of claim. It was observed that the amount of claim under the original return was Rs.257.25 crores odd which went up to Rs.275.57 crores odd. This increase was found to be mainly on account of the split up of the units. He took note of the fact that as a result of splitting the units the losses of the individual units were ignored and this accounted for an increase of deduction claimed of Rs.16.75 crores odd.
2.8. The AO further observed that those units which were in their last year of the tax holiday period, were the ones, which earned the maximum profits for the assessee as out of the total claim made by the assessee under section 10A, 65% 8 ITA No. 5623.Del.2010 belonged to the units which were in the last year of their tax holiday period. The claim u/s 10A of Chenani-1 and Noida-1 which added up to Rs.170.20 crores the AO found totaled to 65% of the total claim. The AO was of the view that this was the reason why the assessee had split up the units as the intention was to extend the period of claim u/s10A. Carrying on the comparison further the AO observed that the profits before the claim of deduction u/s 10A by the revised return underwent a change when compared with the corresponding figures mentioned in the original return. The difference in respect of the units was brought out by him by way of a chart in para 4.9 of his order which is extracted hereunder:-
Name of the Unit (as per Profits as per the Profits as per
the Original Return) Original Return the Revised
Return
Chennai 1 87.43 106.47
Chennai 2 58.58 40.76
Chennai 3 50.80 42.61
Chennai 4 0.50 (2.92)
Noida 1 32.32 61.84
Noida 2 (0.02) NA
Noida 3 29.40 17.61
Noida 4 0.64 (4.70)
Kolkata (0.11) NA
Bangalore 2.14 0.07
PSO 1 (3.48) (2.20)
PSO 2 (0.57) (0.60)
PSO 3 0.54 (0.18)
2.9. He further observed that the profit figures as per the revised return had been worked out by summing up of the split units corresponding to the single units mentioned in the original return.
2.10. In the light of these observations and discrepancies noted by the AO as per para 4.10 of his order detailed questionnaire on 15.09.2008 was issued to the assessee requiring him to explain why the claim u/s 10A in respect of the split units should not be rejected. The assessee was further required to provide whatever 9 ITA No. 5623.Del.2010 material it had on record to substantiate its claim that each of the 31 units was separate and distinct and was not formed by splitting up of the existing units. 2.11. Considering the reply of the assessee, the AO was of the view that in order to avail the tax holiday as per sub-section (2) of section 10A of the Income Tax Act, 1961, the undertaking is required to fulfill the following conditions:-
a) "The unit must begin manufacture or production of computer software in STP in the previous year relevant to AY 1994-95 or thereafter and should be set up in a STP.
b) The unit should not be formed by splitting up/reconstruction of a business already in existence.
c) The unit should not be formed by transfer to a new business of machinery or plant previously used for any purpose.
d) The assessee must furnish a report of an accountant in the prescribed format certifying that the exemption has been properly claimed. This report should be submitted alongwith the return of income."
2.12. Considering the case law relied upon by the assessee in its reply submitted the AO relying on the judgment of the Karnataka High Court in Nippon Electronics (India) Pvt. Ltd. (181 ITR 518) (KAR.) was of the view that the Court had examined therein the argument whether the requirement of formation had to be seen in the year of set-up or, could it be seen even in subsequent years also and on examining the said question it had been held that the term "formed" has been interpreted to imply 'which needs to be seen at the initial year of tax holiday and not during subsequent years'. Reliance was also placed on the decision of the Madras High Court in case of L.G. Balakrishnan and Bros Ltd. (151 ITR 270) wherein the High Court examined as to whether transfer of machinery took place before formation. He also took note of the fact that in some of the judgements namely CIT v. Gopal Plastics (P) Limited (1995) 215 ITR 136 (Mad.) CIT v. Seeyan Plywoods (1991) 190 ITR 564 (ker.), the High Courts have also held that this condition would be applicable on a year-to-year basis. Accordingly, he was of the view that compliance 10 ITA No. 5623.Del.2010 with the condition may have to be assessed even subsequent to the formation of the units, however, even those judgments it was clear that the conditions have to be met in the initial year and accordingly must be verified in the initial year also. 2.13. In the above legal position, considering the facts of the assessee's case, he held that the assessee has not subjected itself to any scrutiny with respect to the conditions in the initial year since till the current year the assessee had never claimed that the extensions were separate units. Accordingly based on the decisions considered he was of the view that there is no reason as to why the claim of the assessee with respect to the additional units be entertained in the current year when the initial year of all the additional units had already passed without any scrutiny. He was of the view that this clearly shows that the assessee has deliberately and intentionally not subjected itself to scrutiny in the initial years. In the circumstances where no compliance has been demonstrated by the assessee in the initial years, which is the basic requirement he restricted the claim under section 10A with respect to the amount as computed under the Original Return of income and ignored the claim made under the Revised Return of Income. The time period for the claim under section 10A accordingly he was of the view was to be computed as per the Form 56F submitted along with the Original Return only.
3. Having come to the above conclusion the AO proceeded to further examine the claim of the assessee on merits with respect to the conditions mentioned in Section 10 A in para 6 to 6.18 of his order.
3.1. The first condition he held which was required to be met was that the unit should be engaged in the business of manufacture or production of software and should be set up in STP. Considering the fact that the term industrial undertaking which has not been defined in the Section he referred to the definition in section 3(d) of the Industrial Development and Regulation Act, 1951 as which defined industrial 11 ITA No. 5623.Del.2010 undertaking as "any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including Government." 3.2 Further considering the definition prescribed in Section 33 B of the Income Tax Act, the various dictionary and law lexicon meanings of the said term and relying on I-Gate Global Solutions Ltd. vs ACIT (2007) 112 TTJ (BANG.) 1002; Videsh Sanchar Nigam Ltd. vs. CIT, City-I, Mumbai [2008] 111 ITD 190 (MUM.) (SB)/[2007] 110 TTJ 948 he was of the view that the following legal position emerged which was summed up by him in the following manner:-
"6.10. In all those decisions, certain distinguishing features are apparent. An existing unit may start new units; the new units may produce the same articles produced by the old unit; the items produced by the new units may be consumed by the existing unit; there is no quarrel on these factual aspects. But apart from the above common features, the Courts have also held that the new units set up by the existing business houses should be independent units engaged in a distinguishable commercial activity and capable of surviving independent of the existing business. The above features apparent in all the judicial pronouncements endorse the principal view of an "undertaking" as construed in commercial and business circles. An undertaking is not an abstract piece of idea. It is not a concept as such, it can have its own physical identity by land, building, plant and machinery; it can have its own technology but still the new units may very much form part of the existing unit. These are all matters of different permutations and combinations that emerge out of business dynamics in given set of circumstances. But above all, the distinguishing feature of an undertaking eligible for deductions provided under the Income Tax Act is its basic character of independence of function and ability to survive independent of the old units. All the cases conclude that a new-undertaking whether integrated in the existing business or not, has to have an independent functional identity which makes it a separate operational and profit centre.
6.11. Hence it is clear from the judicial precedents cited above that the undertaking to be able to claim the benefits of a tax holiday should be an independent and separate unit which is capable of conducting business in an independent manner and should not be linked to the other units of the assessee for doing its business."
3.3. The AO further proceeded to examine the position from the point of view of STP scheme and other related regulations as under:-
"6.14. In order to be set up and considered as a separate unit, eligible for relief under section 10A, the unit has to be compulsorily situated within and registered 12 ITA No. 5623.Del.2010 with a Software Technology Park. The STP is governed by the STP Scheme issued by the Government of India vide Notification No. SO 243(E) dated 22nd March, 1994. Hence each unit has to comply with the requirements laid down by the Scheme to be called a separate unit. As per the scheme, each unit has to be granted a license after which it can commence operations within the STP. Further, a unit registered under the STP has a number of obligations."
3.4. Referring to the information available in the public domain disclosed on the website of STP Hyderabad he observed that there are certain obligations of the Units and question No. 17 of the FAQ on the said website lists the do's and don'ts. The same are extracted from the order hereunder for ready reference:-
"1. The development/production of the unit under the scheme shall be carried on in a customs bonded area.
2. Commencement of production within the gestation period allowed under the scheme and starting exports. Intimate STPI of the date of commencement of commercial production within 30 days. If commercial production and exports are not commenced within a period of 3 years from the issue of the letter of approval (LOP) given for the establishment of the unit under the Scheme, the LOPLAPSES automatically after the expiry of the said 3 years.
3. The nit shall be a net foreign exchange (NFE) earner and NFE should be positive over the period of 5 years.
4. The unit shall realize the amounts due for the exports made within 180 days from the date of export, or the due date under the contract, whichever is earlier.
5. If the unit fails to fulfill the export and other obligations under the scheme, it will be liable to pay the customs duty and excise duty on the goods procured and such other penalties and liquidated damages as may be decided by the Government.
6. In case external commercial borrowings are resorted to, necessary permission from Ministry of finance to be obtained.
7. In case of import of US controlled items, please comply with the relevant provision vide S.No.9 of the standard condition attached to the letter of approval fro 100% EOU.
8. Maintain separate accounts for the operation under the scheme.
9. Maintain prescribed records and document.
10. Apply to STPI for clearance in the following cases:
• For any change of address, change of name or constitution of the unit. • For extension of premises for carrying out the operation. • For shifting of equipment from the bonded warehouse for repairs, temporary transfer, permanent transfer, inter unit transfer, disposal, etc. • For exporting the imported equipment for repairs/replacement.13 ITA No. 5623.Del.2010
• For re-export of equipment imported on loan basis.
• For enhancing the limit of capital goods to be imported. • For debonding of the equipment/ debonding of the unit. • For reimbursement of CST.
• For sale of imported capital goods and materials.
• For disposal of obsolete equipment.
• For donation of obsolete equipment.
11. Pay the dues to STPI on time.
12. Submit the Quarterly/ Annual performance reports in the prescribed form on time."
( Bold texted for Emphasis) 3.5. Considering the STP Regulations he further observed that the regulations also permit an undertaking to expand its premises for carrying out its operations. Since expansion of an existing unit does not lead to the formation of a new undertaking and infact the STPI Regulations refer to and permit the extension of the premises and further for carrying out its operations a single undertaking can have multiple locations within the STPI the AO concluded that the assessee has not been issued separate license but has merely been permitted to expand extension certificate. He further found support for his conclusion on considering the specific provisions in the Import/Export policy and procedures, the Foreign Trade Regulation Act, Customs & Central Excise Regulation which were also applicable to a STP unit with which also the assessee had to comply. He summed up some of the key regulations/ filings which a unit has to comply with namely were banking regulation; customs bonding; certain other filing requirements etc. The same are extracted from the assessment order here under:-
"6.18 Some of the key regulations / filings which the unit has to comply are identified in the paragraphs below:
7. Banking: Each STP unit is required to maintain separate bank accounts for its operations. The unit may maintain as many bank accounts as it desires but shall have to designate a single branch of a bank through which all export documents are required to be submitted. In other words the work of handling of all shipping documents and realization of export proceeds ought to be entrusted to this designated bank branch. The proof of this bank account has to be submitted along with the application for registration under the STP Scheme.14 ITA No. 5623.Del.2010
8. Customs Bonding: The premises of STP unit have to be mandatory Custom Bonded, irrespective of whether such unit avails the benefit of customs duty/ excise duty exemption. The custom bonding is to be renewed on a yearly basis for STP units which in the normal course expire on 31st December each year.
9. Certain filing requirements 9.1. "Softex Declaration form As per current regulation a Software Export Declaration (Softex) form is to be filed with STPI authorities within six months of the invoice date. This is a mandatory requirement under the Exchange Control Regulations issued by the Reserve Bank of India. This is filed for declaration of Software Exports through data-communication links and receipt of Royalty on the Software Packages/Products exported.
9.2. Periodical Returns Monthly progress report has to be submitted in Form 14 and should be submitted by the 10th of the next month.
Quarterly Progress report has to be submitted in Form 15 to the Designated Officer and to the Ministry of Information and Technology explaining the progress of the unit.
Annual performance reports have to be given to STPI 111 Form 17 by 15th April.
10. Further if one goes by the condition or separate books of accounts for each unit it implies that each STP unit is required to maintain separate annual balance sheets and profit and loss accounts, Generally speaking for maintaining separate accounts the following books/documentation arc required to be maintained :
a) Maintenance of cash book.
b) Maintenance of Bank book.
c) Maintenance of separate cash and bank vouchers.
d) Maintenance of sale invoices. One copy of the export invoice is required to be endorsed by the Banker's and kept in record.
e) Maintenance of party-wise ledger for both debtors and creditors.
f) Maintenance of fixed asset register.
g) Maintenance of "Foreign Inward Remittance Certificates (FIRC's)" file where the original FIRC's are kept.
h) Maintenance or "Bank Realization Certificates (BRCs)" file where the original BRCs are kept.
i) Maintenance of purchase order file where copies of all purchase order issued are kept. The purchase orders should be numbered to avoid confusion.
j) Maintenance of contract file, where copies of contracts received from buyers are maintained.
k) Preparation of monthly trial balance.
l) Preparation of yearly balance sheet for the unit which would ultimately become a part of the balance sheet of the company.
11. Hence for a unit to be treated as a separate and distinct undertaking under the STP Scheme, to which the benefits of section 10A can be conferred, the unit has to be complying with a lot of regulations.
12. Application of the above principles in the case of the assessee 15 ITA No. 5623.Del.2010 Based on the above definition of the term undertaking and the judicial precedents in this regard, the case of the assessee was examined.
12.1. Compliance with STPI Regulations The assessee in his abovementioned reply has contended that each and every location with a single license is a separate undertaking and as proof of the same has submitted that there are separate lease deeds for each premise, separate STPI approval documents, and separate Customs Bond certificates. Further, the assessee has contended that he has maintained separate books of accounts. 12.2 Expansion and Not New Undertakings As mentioned in the STPI regulations above, a unit to be registered under an approved STPI has to be granted a license by the respective STPL After having granted a license, the unit gets registered and is permitted to commence operations, Thereafter, the unit is permitted to expand its area of operation by seeking permission for expansion, At the time of seeking the permission for expansion, it is logical that the assessee will have to execute lease deeds for separate premises and will also have to approach the customs authorities for bonding certificate. Hence the mere existence of these documents does not establish that each expansion is a new undertaking.
3.6. Further considering the reliance placed by the assessee on letter dated 24th October 2008 of STP, Chennai-I he was further of the view that it did not help the assessee. We extract the relevant portion from the assessment order itself :-
12.3. The assessee, as an example has furnished a letter from STP Chennai authorities dated 24th October 2008 in respect of the Chennai I STP wherein it has been stated that the company is eligible to expand its operations by setting up new undertakings. However, it is surprising that the same STPI authorities have actually not issued separate licenses but have merely treated the new premises as mere extensions. Hence it is not possible to treat the letter of the STPI Chennai I authorities as conclusive evidence that the assessee has set up new undertakings.
The only interference which can be drawn from this letter is that the assessee is operating in multiple locations under a single license. Hence it is a single undertaking with multiple locations.
12.4. This fact is reinforced by a letter written by STPI Chennai dated 28th January 2005 produced by the assessee in Volume I of the detailed submission referred to above. In this letter, the STPI has mentioned that the assessee has three STP units in Chennai with multiple locations.
12.5. Further, if one is to go by the contention or the assessee that each and every location should be treated as a separate undertaking then from the submissions made by the assessee it is observed that Chennai-I consists of 23 location which have been clubbed into 8 separate undertakings, Chennai -II consists of 11 locations which have been clubbed into 5 undertakings and Chennai consists of 6 locations which have been 16 ITA No. 5623.Del.2010 clubbed into 4 undertakings. These submissions have been made on pages 38 and 39 of the submission dated 24/l1/2008.
3.7. Examining further the claim of the assessee on facts he further was of the view that the claim was not maintainable on the following reasoning:-
13. New Investment: The assessee has contented that each of the units have been set up with substantial new investments. This however has never been disputed. In support of the above claim, the assessee has submitted sketchy details of purchase of fixed assets. The issue was never the correctness of the purchase of fixed assets. Even if the units were not treated as separate and distinct, the assessee would surely have had all the documents with respect to purchase of fixed assets. The issue of investment is to be decided by the presence of books of accounts which clearly show the investment made and the return earned by the undertaking. The assessee despite repeated oral requests has not been able to produce books of accounts of any of the units. In the absence of the present of books of accounts it becomes difficult to verify the claim of the assessee that each and every unit has been set up with substantial new investment.
14. Separate Work Force:-The assessee has contended that each and every unit has a separate identified work force and in support of the same has presented sample, attendance sheets. This information is not a deciding factor in the debate over a separate undertaking and hence is being considered as being irrelevant.
15. New Technology:-The assessee has further contended that each of these undertaking are addressing newer and different technology areas. This is difficult to verify and further the Mumbai Tribunal in the case of VSNL referred to above has held that the mere fact that new unit has been added by adopting contemporary and appropriate technology will not qualify the new unit as a separate undertaking for tax holiday purposes.
16. Separate Customers:-The assessee has further contended that each and every unit is executing independent computer software projects. On a test check basis it was found that the units at 49-50, Nelson Manickam Chennai and at 158 Arcot Road, Chennai both registered under the Chennai-I STP were servicing the customer CISCO. Further, in a number of cases it was observed that the ultimate customer of the assessee is a group company situated outside the country. Hence not only is the contention of the assessee difficult to verify but is also factually incorrect.
17. Separate bank Account :-Each STP unit is required to maintain separate bank accounts for its operations. The unit may maintain as many bank accounts as it desires but shall have to designate a single branch of a bank through which all export documents are required to be submitted. The assessee was requested to furnish a list of bank accounts for each and every unit right from the initial year.
The assessee has placed no evidence on record to prove that each and every unit has a separate bank.
18. Softex Forms: The softex form is a specific requirement under the RBI Regulations. It has ot be filed client wise and unit wise. The assessee has 17 ITA No. 5623.Del.2010 produced a few softex forms on a test check basis. However, even if it is assumed that the softex forms exist, it is not sufficient to prove that the unit is an independent unit.
19. Separate Books of Accounts: The assessee has not produced separate books of accounts for any of the units. In fact the profit figures of claim under section 10A in the original return adds up top Rs.257.24 crores and in the revised return this claim has gone up to Rs.275.57 crores. One of the reasons for this claim going up is because as the number of units was increased, some of the units were running into losses and their losses were not considered. Hence the claim went up by Rs.16.75 crores. This fact clearly points out that the assessee has not been maintaining separate books of accounts and also points out to the fact that in the earlier years the claim under section 10A may also be misstated. 19.1. Further, the assessee has not been able to reproduce any separate books of account on a unit wise basis. Hence it can be reasonably concluded that the profit figures as computed under the revised returns have not flown from any books of accounts but are derived from some calculations."
(Emphasis provided) 3.8. Considering the fact that only 13 separate licenses were available to the assessee which had been issued by STP authority on the basis of which the assessee had acted over the years and claimed deduction u/s10A it was held that the deduction claimed in the Revised Return was not maintainable as the original 13 units were further split into 31 units were not supported by separate licenses. The list of licenses available with the assessee were summed up in para 20 of the assessment order in the following manner:-
STP License License No. & Date
Chennai 1 STPI/IMSC/94/2111
26 Dec 1994
Chennai 2 STPIC/MSC/1999-2000/2589& 2590
07 Mar 2000
Chennai 3 STPIC/IMSC/2002-2003 1287 & 1288
13 Mar 2003
Chennai 4
Noida 1 5(4)/94/57 2796
26 Dec 1994
Noida 2 PCMG/PSE/05/025/STPIN/5524
14 Mar 2000
Noida 3 STPIN/APP/8282003/200228/18766
28 August 2003
Banglore 1 EIG/HCL-Technologies/GEN/19225& 26
30 October 2003
18 ITA No. 5623.Del.2010
PSO-Chennai 1 STPB/IMSC/93/665
7 June 1996
PSO-Chennai 2 STPIC/IMSC/93/665
7 June 1996
PSO-Noida March 16, 1995
PSO-Kolkata EIC:90:96-97:071
7 June 1996
3.9. Carrying on the examination further he also found that even the second condition that the unit should not be formed by the splitting up of an already existing business was also not fulfilled.
3.10. Further considering the fact that there was no direct judicial precedent for Section 10A and taking cognizance of the fact that the Courts have interpreted similar provision in cases dealing with Section 80IA and 80J of the Income Tax Act 1961 and Section 15C of the Income Tax Act 1922 and the judgment of the Apex Court in the case of Textile Machinery Corporation Ltd. vs. CIT (107 ITR 195) (SC) wherein the Hon'ble Court was dealing with Section 15C of Income Tax Act 1922 he was of the view that the following points emerged therefrom:-
"21.2. Applying the above principles to the facts of the assessee, the following points emerge:
• There has been no emergence of a fresh new undertaking and no fresh investments have been made. The profits and capital of the 31 units have been carved out from the original 13 units.
• The assessee has not been able to produce any documentary evidence to show that in the years in which the units were formed, there was a separate capital investment:
• No record of profits has been shown by the assessee from the year of inception thus clearly showing tht the so called separate units did not exist prior to the current Assessment Year.
• No evidence has been provided that the new units were engaged in executing jobs which were distinct from the original units. Hence it is reasonable to assume that the so called new units were carrying out the same jobs as the original units."
21.3 The above decision was considered by different High Courts in various cases where the facts were determined to be similar to the above case.
22. Third Condition 22.1 The third conditions state that the unit should not be formed by transfer to a new business of machinery or plant previously used for any purpose. This is a factual condition.
19 ITA No. 5623.Del.201022.2 This condition needs to be verified in the first year of the unit being set up. Since there was no verification of the units in the first year, it is difficult to conclude whether the additional units satisfy this condition.
23. Fourth Condition 23.1 The fourth conditions states that the assessee must furnish a report of an accountant in the prescribed format certifying that the exemption has been properly claimed. This report should be submitted along with the return of income.
23.2 Even the mandatory filing of Form 56F has not been complied for in the previous years. This is the first year in which the assessee has actually submitted a separate Form 56 for each of the 31 units. Till the assessment year 2003-04, the assessee was maintaining that it had only 13 different units for which the benefits u/s10A were being claimed. It is only in the current assessment year that the assessee has carved out 31 separate units after splitting the erstwhile 13 units. The assessee has no explanation as to why this mandatory condition has not been followed in the earlier years. Hence going by this condition it is clear that the assessee has not been meeting the fourth condition as stated in Section 10A.
24. Conclusion: Based on the above analysis the following conclusions are reached:
• I restrict the claim u/s 10A with respect to the amount as computed under the Original Return of income and ignore the claim made under the Revised Return of Income: and • The time period for the claim u/s 10A will be computed as per the Form 56F submitted along with the original Return only.
Consequently this is the last year of tax holiday for the following units including their extensions and these units will not be eligible for claim of benefit u/s10A from the subsequent AY"
º Chennai_1;
º Noida-1; and º PSO Noida 3.11. Thus a perusal of the above extract from the assessment order shows that considering the third condition which the assessee was required to meet namely that the unit should not be formed by transfer to a new business of machinery or plant previously used for any purpose the AO was of the view that it was a factual condition which was to be verified in the first year and since there was no verification of the units in the first year, he held that it is difficult to conclude whether the additional units satisfied this condition or not.20 ITA No. 5623.Del.2010
3.12. Similarly examining the fourth condition, namely the claim to be supported by Form 56F. Considering that fact that this is the first year in which the assessee had actually submitted separate From 56 for each of the 31 units because till 2003-04 A. Year, the assessee was maintaining that it had only 13 different units for which the benefits under section 10A had been claimed and it is only in the current assessment year that the assessee had carved out 31 separate units after splitting the erstwhile 13 units he concluded that it was clear that the assessee had not met the fourth condition as stated in Section 10A.
3.13. On the basis of the above reasoning the claim of the assessee was restricted to the claim made in the original return.
4. Aggrieved by this, the assessee went in appeal before the DRP who summed up the objections of the assessee in the following manner :-
"A. Corporate Issues.
1. Objections regarding deduction u/s 10A of the Act.
(a) The assessee has claimed that it had 31 separate software development centers and each software development centre represents a separate undertaking for the purpose of deduction u/s 10A of the Income Tax Act. This claim of the assessee was based on the submission that though the assessee was running all these 31 software development centres under 13 licenses issued by the STPI authorities, but there were 31 undertakings registered with the STPI and custom authorities and that each of the 31 undertakings was set up as an independent stand alone undertaking for production of computer software. It was the contention of the assessee that although, the 31 undertakings were operating only under 13 licenses granted by the STPI authorities but these were operating in separate premises with separate addresses also in most of the cases.
The AO however, did not accept this contention of the assessee. The AO treated the group of all the development centres operating under one license granted by the STI authorities as one undertaking for the purpose of granting deduction u/s 10A of the I.T.Act."
4.1. Considering the same, the DRP came to the following conclusion:-
"We have given a careful consideration to the claim of the assessee and various arguments advance by the Ld. ARs in support of the claim. We, however find that the claim of the assessee cannot be accepted. The registration granted to the separate software development centres by the STPIs and by the Custom Authorities in no way satisfies the condition that each software development 21 ITA No. 5623.Del.2010 centre is a separate undertaking. These registrations are granted for different purposes. The registration granted by the STPI, is only a certificate that the entire production of that software development centre will be exported. Similarly, the registration granted by the custom authority is also for this purpose and for the additional purpose that the said software development centre will be held as bonded premises for removal of the software manufactured in the premises. That is the only reason for getting these registrations wherever a new development centre is added to the existing development centre running under a license already granted. The software development center added under each license is only an extension of the original undertaking set off under the license granted by the STPI authorities. Therefore the development centers, added subsequent to opening of the centres under the original license is only an expansion of the original undertaking and in no way can be treated as a separate undertaking for the purpose of deduction u/s 10A of the I.T.Act. The AO's observations in this regard in the assessment order are important. The AO has mentioned that the examination of Form No-56F filed by the assessee reveals that the majority of the cases of original centre have been split up into different centres and the separate form 56F has been filed for each and every split centre, thereby claiming deduction u/s 10A for each centre. The AO has given example of such splitting up of the units in the assessment order. It is also noteworthy that in the original return the assessee itself has claimed deduction u/s 10A as if, it had only 13 undertakings. It is only by way of revised return that the deduction u/s 10A have been claimed showing that the assessee had separate 31 undertakings. Up to A.Y.2004-05 and till even filing of there original return the assessee has been claiming deduction u/s 10A on the basis that all the development centres operating under one license is one undertaking for the purpose of deduction u/s 10A. In this regard, the reference to the principle of statusquo laid down by various judgement of Hon'ble Supreme Court and various High Court that the position which is settle for a long time will not be unsettled unless there is material change in the facts and circumstances of the case."
4.2. Pursuant to this order the present assessment order which is under challenged has been passed u/s 143(3) read with Section 144 (13) of the Income Tax Act 1961.
5. Aggrieved by this the assessee is in appeal before the Tribunal. 5.1. At the time of hearing, Ld. AR carried us through the draft assessment order, the order of the DRP and the impugned order passed in pursuance to the directions of the DRP highlighting the fact that the original return filed was revised wherein the deduction claimed u/s 10A was revised. The argument put forth was that the assessee had 13 "mother licenses" and the applications made for setting up new units were permitted by the STP Authorities who instead of issuing separate licenses 22 ITA No. 5623.Del.2010 granted permission on the existing "13 mother licenses" accordingly it was contended that as per the revised claim the 31 undertakings registered with STPI were eligible for deduction u/s 10A.
5.2. Referring to the material available on record it was submitted that in fact there were 28 undertakings in the previous year + 6 new undertakings out of which 2 undertakings did not have operation and one unit at PSO, Chennai-1 became taxable in the next year. It was submitted referring to the Synopsis dated 01.02.2012 filed that in the revised return of income deduction u/s 10A was computed at Rs.275.57 crores as against Rs.257.24 crores computed in the original return of income which was further clarified by the following chart:-
Particulars Rupees Amount of deduction claimed u/s 10A of the Act as per 2,572,487,070/- the original return of income Add: Increase in the amount of deduction claimed 173,119,409/- u/s10A due to increase in the amount of profits of
profit making undertakings in the revised return by the reason of separate treatment of losses of loss making undertakings and by the reason of certain disallowances omitted to be made in the original return and subsequently made in the revised return of income.
Add: Increase in the amount of deduction claimed u/s 10,118,511 10A of the Act on account of adjustment which was done in the original return of income from the export turnover and from the total turnover on account of expenses incurred in foreign currency but no such adjustment was done in the revised return of income Total amount of deduction claimed u/s 10A of the Act 2,755,724,990/- as per the revised return of income 5.3. Referring to the material available on record, it was his submission that merely because the assessee in the earlier year did not compute the deduction u/s 10A considering the 31 units as separate undertakings and instead computed the deduction u/s 10A on the basis of the 13 STPI licenses this fact does not act as an estoppel to prevent the assessee from correctly computing the deduction u/s 10A in 23 ITA No. 5623.Del.2010 the relevant previous year by treating each of the 31 units as a separate and independent undertaking by virtue of filing a revised return of income. Addressing the facts it was his submission that in the relevant previous year, the assessee had 31 undertakings registered with STPI and Customs Authorities. It was submitted that each undertaking of the assessee was set up as an independent stand alone unit for production of computer software. The STPs and Customs Authorities had registered all the 31 STP undertaking under the 13 licenses which are summon up at pages 3 & 4 of the "Broad Synopsis" dated 1/2/2012 on record. For ready reference the same is extracted hereunder:-
S. NO. STPI Licenses Number of S.No. Undertakings
Undertakings
Covered
1 STPI Chennai-1 8 1 J16, Anna Nagar, Chennai-600102
2 No. 50-53 Greams Road, Chennai- 600006
2 STPI Chennai-2 5 3 49-50 Nelson Manickam Road, Chennai-600029
4 D12 & 12B, Sidco Industrial Estate, Ambattur,
Chennai-600058
5 PM Towers, No. 37, Greams Road, Chennai-
600006
6 158, Arcot Road, Vadapalani, Chennai-600026
7 Sapna Trade Center, 110, P.H. Road, Chennai-
600084
8 602, Tidel Park, 4 Canal Bank Road, Taramani,
Chennai-600113
9 PM Towers, 6th & 7th Floor, NO. 37, Greams
Road, Chennai-600006
10 51, Jawaharlal Nehru Street, Guindy Industrial
Estate, Ekkattuthangal, Chennai-
11 184, Arcot Road, Vadapalani, Chennai-600026
12 34-35, Haddows Road, Chennai
24 ITA No. 5623.Del.2010
13 299, Arcot Road, Vadapalani, Chennai. 600026
3 STPI Chennai-3 4 14 No. 78, South Phase, Ambattur Industrial
Estate, Ambattur, Chennai-600058
15 No. 402, Tidel Park, Taramani, Chennai-
600113
16 64, 65 Second Main Road, Ambattur Industrial
Estate, Ambattur, Chennai-600058
17 No. 35, South Phase, developed Estate, Guindy,
Chennai-60032
4 STPI Chennai-4 1 18 Plot No. 94, South Phase, Ambattur Industrial
Estate, Ambattur, Chennai-600058
5 STPI Noida-1 6 19 3, Udyog Vihar, Phase1, Gurgaon.
20 A11-Sector 16, Noida
21 A1CD, Ssector 16, Noida
22 244, Udyog Vihar, Phase 1, Gurgaon.
23 A-5, Sector 24, Noida
24 A10-11, Sector-3, Noida
6 STPI Noida-2 1 25 445, Udyog Vihar, Phase 11, Noida
7 STPI Noida-3 1 26 567, Udhyog Vihar, Phases IV
8 STPI Noida-4 1 27 Sector-60, Noida
9 STPI Kolkata 1 28 14th Floor, Infinity Tower-II, Plot A- 3, Block
GP, Sector-V, Kolkata
10 STPI Bangalore 2 29 No. 8 & 9 G B Palya, Off-Hosur Road,
Bangalore-560068
30 5th Floor & 6th Floor, No. 690, Hosur Road,
bangalore-560068
25 ITA No. 5623.Del.2010
11 PSO, Chennai-2 1 31 PSO, Chennai-2
12 PSO, Kolkata 1 32 PSO, Kolkata
13 PSO, Noida 1 33 PSO, Noida
33
5.4. It was his submission that the Revenue has erred in disregarding the revised return of income and thereby also disregarding the computation or deduction u/s 10A. It was his submission that it has been ignored by the Revenue that each of the 31 units had been set up with due approval from the prescribed authorities and is liable to be considered as a separate independent and a distinct unit eligible for deduction u/s 10A. In support of the claim, it was argued that the assessee had duly furnished Form 56F in respect of the 31 undertakings. It was submitted that each software development centre owned by the assessee has always been treated as a separate undertaking for this purpose. Attention was invited to the copy of the assessment order for 1999-2000 wherein reference of each of the 15 undertakings which was existing on 31.03.2001 had been made by the AO copy of this order it was stated is placed at pages 826-831 of the paper book. It was argued by the Ld. AR that each software development centre owned by the assessee constituted an independent viable undertaking and fulfilled the conditions as prescribed u/s 10A of the Act on the following propositions on facts:-
" Propositions on facts:
(a) The appellant has set-up STPI Units (hereinafter referred to as "undertakings) from time to time by seeking the necessary approval from the STPI and Customs Authorities in accordance with the provisions as contained in the Software Technology Park Scheme (the STP Scheme) notified by the Government of India in the Ministry of Commerce and Industry. Whenever a undertaking was set-up by the appellant, it was for the purpose of meeting the requirement of business growth and expansion as is evidenced by the following numbers of the revenues, employees and number of undertakings of the appellant:-26 ITA No. 5623.Del.2010
Financial Year Revenues (in Crores Employees(in Undertakings of Rupees) number) (in number) 1995-96 21.05 602 2 1996-97 48.22 917 3 1997-98 93.55 1,223 5 1998-99 227.08 1,458 6 1999-2000 367.32 2,575 8 2000-01 663.08 3,488 15 2001-02 720.10 4,044 18 2002-03 824.89 5,670 22 2003-04 1,058.42 7,673 28 2004-05 1,353.31 10,996 34 At the time of setting up each of the undertakings, the following steps were taken by the appellant:
1. Separate premises were taken by the appellant on lease/outright purchase by executing a lease/sale deed;
ii. A separate approval was obtained from the STPI Authorities (however, instead of seeking a fresh mother license every time, the appellant had sought the approval by the virtue of seeking endorsements to the existing mother STPI licenses in certain cases);
iii. A separate approval was obtained from the Customs Authorities and a separate Customs Bond was executed by the appellant;
iv. Separate Bond Registers are maintained contemporaneously by each of the undertakings for the procurement of imported and indigenous capital goods (every time, an item of capital goods--either imported or indigenous--was procured by any of the SPTI Units, the relevant invoice was first signed and stamped by the concerned Customs Officer and then the capital goods was entered into the bonded premises of the concerned STPI Unit);
v. Whenever any capital goods is supplied by any of the customers on loan basis for the execution of a project to a STPI Unit, the same is also recorded in the Customs Bond Register maintained by the undertaking;
5.5. It was further argued on behalf of the assessee that the assessee had placed on record various evidences to demonstrate that each undertaking was set up with substantial capital investment, in plant and machinery; had new employees, new business projects; new technology. These submissions are found advanced at pages 8 to 15 of the above mentioned "Broad synopsis" filed. As an illustration it was 27 ITA No. 5623.Del.2010 submitted the complete set of accounts of Sapna Trade Centre, Chennai and 602 Tidel Park, Chennai had been produced.
5.6. Referring to sub-section (5) of section 10A it was submitted that the Act provides that the deduction shall not be admissible unless it is furnished in the prescribed form alongwith the return of income accompanied by the report of a Chartered Accountant certifying that the deduction has been correctly claimed in accordance with the provisions of the section. Accordingly the only requirement is that Form 56 F is to be signed by the Chartered Accountant certifying the correctness of the computation of deduction u/s 10A of the Act on the basis of examination of accounts and records of the assessee. It was his submission that the said section does not require that assessee to maintain separate books of accounts for each of the units and it only requires the assessee to compute the profits of the eligible units which requirement has been fulfilled by the assessee. As such it was his argument that maintenance of separate books of accounts is not a necessary condition to be met for claiming deduction u/s 10A of the Act. 5.7. Reliance was placed upon DCIT Vs. Arabian Exports Ltd 109 TTJ 440 (Mum) wherein considering the conditions as mentioned in sub section (2) of the section 10B the action of the CIT(A) has been affirmed by the Tribunal. The objections of the AO therein that separate books of accounts were to be maintained qua the unit for which deduction u/s 10B was being claimed was held to be not justified. Relying on the same it was his contention that the AO has erred in holding that separate books of accounts are to be maintained for claiming deduction u/s 10A and has thereby imputed more onerous obligation for allowance of deduction u/s 10A then what is actually provided in the statute.
5.8. Without prejudice to the above legal position on facts it was contended that the assessee has maintained separate records for each undertaking and has computed the deduction u/s 10A in respect of which each undertaking on the basis of Profit & 28 ITA No. 5623.Del.2010 Loss Account prepared by considering the revenues and expenses both direct and indirect expenses on the basis thereof which it has been duly certified by the Chartered Accountant in Form 56F. Accordingly it was his contention that each undertaking is an independent and separate undertaking registered with STPI and is eligible for deduction u/s 10A in as much as:-
"i. Each undertaking was et up with substantial capital investment, new business and new models;
ii. The undertaking had identified workforce;
iii. Each undertaking is situated in a separate identifiable premises bounded by custom authorities and registered with STPI; and iv. Each undertaking is independently executing computer software projects.
5.9. It was further submitted that on the request of the assessee Chennai STPI Authorities had clarified the position available on record vide Certificate reference No-"STPIC/A-111/2008-09/A-5419 dated 24.10.2008 the nature of permission granted for setting up of the undertaking . The relevant portion thereof is extracted from the written submission Page 20 hereunder:-
" Approval has been granted to the Company from time to time to set up all the undertakings covered under STPI Chennai-I in accordance with the provisions as contained in the Software Technology Park Scheme (the STP Scheme) notified by the Government of India in the Ministry of Commerce and Industry. Whenever the approval has been granted to the Company for expansion, the Company is eligible to expand its operations by setting up new undertakings subject to fulfillment of conditions as contained in the first approval."
5.10. Referring to Section 10A it was his submission that the requirement of law is that the undertaking should be established/set up in a software Technology Park and the provision does not specify the manner in which the approval/Registration is to be issued by the STPI Authorities. It was further contended that it does not specify that a separate licence is a condition precedent for holding an independent unit operating in Software Technology Park as eligible for deduction.
29 ITA No. 5623.Del.20105.11. Reliance in support of the claim was also placed upon ITO Vs. AMD Export Corporation 79 ITD 381 (Del)and Patni Computer System Ltd. vs DCIT (ITA Nos. 426 & 1131/PN/06) and ACIT vs Symantec Software Pvt. Ltd. (ITA 787 and 805/PN/09 for the contention that it has been held in the same that the manner in which the approval has been granted is not relevant to examine the assessee's claim of deduction u/s 10A of the Act. Relying on the said decisions it was contended that each of the 31 undertakings of the assessee are registered with STPI authority and merely because approval for setting up another STPI Unit(s) is granted on one license it would not lead to the implication that the units are not registered by the STPI authority for the purposes of Section 10A. Each of the 31 undertakings it was contended represents an independent separate and viable unit, registered with STPI Authorities in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry as required by Section 10A of the Income Tax Act, 1961[Clause (i) (b) of Sub-Section (2) of Section 10A read with Explanation 2(vii) of Section 10A o the Act]. It was argued that Section 10A provides for deduction in respect of profits and gains derived by an undertaking from export of article or things or computer software and the term undertaking has been variously defined in the dictionaries, law lexicon, encyclopedia etc. For ready reference we extract from the assessee's written synopsis on record:
" The term "undertaking" has not been defined in Section 10A of the Act. However, Clause (19AA) of Section 2 of the Act, which defines 'demerger', defines for the purpose of that clause an 'undertaking' to "include any part of an undertaking, or a unit or division of an undertaking or a business activity as a whole but does not include individual assets or liabilities or any consideration thereof not constituting a business activity."
The meaning of the term "undertaking", as provided in the various dictionaries, is extracted as under:
Webster's 3rd new International Dictionary-Vol-3,Pg. 2491 A business work project in which one engages in or attempts"
Dictionary.com 30 ITA No. 5623.Del.2010 A task, enterprise, etc., undertaken.
Law Lexicon-Second Edition "The word 'undertaking' must be defined as "any business or any work or project which one engages in or attempts as an enterprise analogous to business or trade."
Black's Law Dictionary "A promise, pledge, or engagement".
Illustrated Oxford Dictionary "work, etc., undertaken, as enterprise".
Webster's Encyclopedic Unabridged Dictionary "The act of one who undertakes any task or responsibility, the task or enterprise, etc. undertaken, a promise, pledge , guarantee".
5.12. Reliance was placed upon the judgment of the Apex Court in the case of Textile Machinery Corporation Ltd. vs CIT 107 ITR 195 on the basis of which it was argued that what is relevant is that a new undertaking has been launched by the assessee by investing substantial funds so as to establish new plant and machineries and the enquiry whether it produces the same commodity as the old business or it produced a distinct marketable product was not relevant as it has been held that it may even produce the commodities which may feed the old business and are consumed by the assessee in the old business itself or may be sold in the open market were all irrelevant facts what was relevant is that has a new undertaking satisfying other conditions is eligible for deduction has come up or not. 5.13. Attention was also invited to Chaturvedi and Pithisaria's Income-tax, Third Edn., at Page 2156 wherein the authors have opined as to what is meant by "industrial undertaking", as under:
" The expression 'industrial undertaking' in Section 80J must be interpreted to mean any venture or enterprise which a person undertakes to do and which has relation to some industry or has some industrial consequences. The notion of an undertaking basically means that it has got to be a concrete and tangible venture in the path of industry to make it an industrial undertaking, wherein some capital is employed, and which is separate to the extent as to show how much a 6% (or 7 1/2 , as the case may be), return would amount so as to make it allowable."
5.14 Reliance was also placed upon the judgement of the Kerala High Court in the case of CIT vs Bhagirath 193 ITR 674 which was stated to be subsequently affirmed 31 ITA No. 5623.Del.2010 by the Apex Court and published in 199 ITR 12 (SC) in the context of provisions of Section 32A of the Act, while holding that the assessee company engaged in the business of construction was an 'industrial undertaking' which term it was pointed out is narrower than the term "undertaking" as such eligible for investment allowance, explained the said term as follows:
" in the absence of a definition in the Act, the words "industrial undertaking"
should be construed in its popular sense. Construing the words "industrial undertaking" occurring in Section 54D of the Income-tax Act, a Bench of this court in P. Alikunju, M. A. Nazeer Cahsew Industires V. CIT [1987] 166 ITR 804 807 stated thus:
"What then is an 'industrial undertaking'. The Income-tax Act does not define what is ' an undertaking' or what is an 'industrial undertaking'. It has, therefore, become necessary to construe these words. Words used in a statute dealing with matters relating to the general public are presumed to have been used in their popular rather than their narrow, legal or technical sense. Loquitur ut vulgus, that is, according to the common understanding and acceptation of the terms, is the doctrine tht should be applied in construing the words used in "It is not the manufacture or production of articles by the company but the manufacture or production by the undertaking, which is different from the company, that is contemplated under the sub-section. A company may own or run many undertakings some of which may be entitled to the benefit of section 84 and others may not be so entitled. It is not, therefore, possible to equate the undertaking with the company. When a company owns more than one undertaking the application of section 84 has to be with respect to the particular undertaking and not to the company in general. When we apply section 84 to a particular undertaking it has to be seen when that undertaking commenced the manufacture or production of articles. It is true that the word "undertaking" has not been defined under the Income-tax Act. But in common parlance it is taken as a concern started or formed for a specific purpose or a project engaged in."
Status dealing with matters relating to the public in general. In short, if an act is directed t o dealing with matters affecting everybody generally, the words used have the meaning attached to them in the common and originally use of language'. (Vide Unwin V. Hanson [1891] Q. B. 115 (CA), per Lord Esher M. R., at page (119). That the Income-tax Act is of general application, is beyond dispute. It, therefore, follows that the meaning that should be given to these words ' industrial undertaking' must be the natural meaning. It is all the more so because the Income-tax and super tax. (See Rao Bahadur Ravula Subba Rao Vs. CIT 91956] 30 ITR 163 (SC) at P. 169.) 'Undertaking' in common parlance means an 'enterprise', 'venture', 'engagement'. It can as well mean ' the act of one who undertakes or engages in a project or business' (Webster). An undertaking mentioned in section 54D must be one maintained by a person for the purpose of carrying on his business 'Undertaking', 32 ITA No. 5623.Del.2010 for the purpose of this section, however, must be an 'industrial undertaking'. The demonstrative adjective 'industrial' qualifying the word 'undertaking' unmistakably and with precision shows that the undertaking must be one which partakes of the character of a business."
5.15. It was his submission that on a consideration of the principles laid down by the Hon'ble High Court in the case of Textile Machinery Corporation Ltd. vs CIT, what emerges is that the undertaking should be a physically separate industrial undertaking which may exist on its own as a viable unit. Reliance was further placed upon ITO Vs. DSM Soft (P) Ltd 115 TTJ 469 (Chennai) and JCIT Vs. Associated Capsule (P) Ltd 114 ITD 189 (Mum) wherein also one of the reasons for denying relief under Section 80-I and 80-IA was that the AO observed that there was only one licence for all the units wherein against the action of the CIT(A) in granting relief relying on Textiles Machinery Corporation the Revenue's argument before the Tribunal that there was only one license was not accepted by the Tribunal. Reliance was also placed upon the decision of the Tribunal in the case of Birla Software Ltd. 2003-04 assessment year in ITA 3812 and 3919/Del/2006 wherein it was held that the new unit (GPC Unit) which was set up by the assessee with substantial investment and as an independent viable undertaking was capable of doing business of its own, the same would be eligible for deduction u/s10A. 5.16. Accordingly the arguments were concluded as under:-
" It is submitted that for the purpose of claim of deduction u/s 10A of the Act, the requirement as per sub section (2) thereof is that the undertaking should be set up for manufacture and export of computer software and such undertaking should be registered with STP. The test for construing whether a unit is to be regarded as independent viable undertaking has been laid down by the Supreme Court and position in this regard is no more res integra.
In order to constitute an independent viable undertaking, the undertaking is to be formed by investment in new plant and machinery, should have separate identified workforce, should exist in a separate identifiable place or premises and the said undertaking should be able to produce or deliver the final project on its own. The appellant with reference to the various evidences, documents, etc., demonstrated that all the aforesaid criteria are satisfied in respect of all the 31 undertakings. Further, each undertaking is custom bonded and is registered with STP authorities.33 ITA No. 5623.Del.2010
The STP is governed by the STP Scheme issued by the Government of India vide Notification No. SO 243(E) dated 22nd March, 1994. Hence each unit has to comply with the requirements laid down by the Scheme to be called a separate unit. As per the scheme, each unit has to be granted a license after which it can commence operations within the STP. Further, a unit registered under the STP has a number of obligations. It has been submitted that each of the 31 undertakings has separate address(es) and are registered with STPI. Further each unit is also custom bounded and the address of such undertaking is on the record of the custom authorities (to constitute a separate undertaking). An identified separate workforce is one of the determinative tests, as laid down by the Supreme Court in the case of Textile Machinery (supra). The assessing officer did not dispute that each undertaking has a separate identified workforce, as is demonstrated by attendance sheet, etc. placed on record. The assessing officer has on his own ignored the relevant facts, which go to the very root of the matter for deciding whether reach undertaking constituted a separate undertaking in terms of tests laid down by the Supreme Court.
In order to support the fact that each undertaking is a separate unit, the appellant submitted that each undertaking is executing independently computer software projects. The assessee also submitted before the assessing officer that undertakings deals in newer and different technology area in order to strengthen/corroborate, the fact that such undertakings in fact is an independent viable undertaking, producing and delivering computer software projects, in its own specialized field to the customers on its own. The aforesaid fact was also relevant for demonstrating that each unit dealt with a different technology area, was not common or part of other unit. The assessing officer has not disputed that each undertaking is independently handling software development projects and each undertaking is an independent, viable undertaking executing and executing separate software projects."
5.17. It was also contended that the reliance placed by the AO on Videsh Sanchar Nagar Nigam 1`00 TTJ 948 (Mum) (SB) is misplaced as the issue in the said decision was distinguishable on facts. The objections of the AO that the conditions as provided in sub-Section (2) of Section 10A in relation to the formation of the unit in as much as that it should not be formed by splitting up or reconstruction of business already in existence or the unit should not be formed by transfer of a new business plant and machinery previously used etc has to be seen in the initial year is based on the presumption that the investment in the initial year has not been examined. It was submitted that in case of the appellant, each of the undertakings (software development centre) are set up as an independent viable unit independently executing computer software development project. Each of the 34 ITA No. 5623.Del.2010 undertakings it was argued satisfies the test of being an independent undertaking for the purpose of claiming deduction u/s10A of the Act, in as much as, each undertaking has identifiable work force and has an independent functional identity and is a separate profit centre. It was also the argument taken that no finding has been recorded by the AO that the Software Units were not functioning as independent viable unit, independently executing software development project.
5.18. It may not be out of place to reproduce the claim of the assessee in assessee's own words extracted from the submissions on record:-
In the case of the appellant, since all the undertakings were eligible for deduction u/s 10A of the Act in earlier years. The appellant inadvertently did not consider it necessary to separately compute the deduction under that section in respect of each of such undertakings having regard to the fact that almost all the undertakings for the appellant were profit making only and the manner of claiming deduction u/s10A of the Act did not matter much for the appellant, i.e., whether to compute the amount of deduction permissible to the appellant either by treating each of the Software Development Centers ("SDCs) as a separate undertaking or by clubbing all the undertakings covered under a particular mother STPI license.
(emphasis supplied by bold texting) In any case, the aforesaid inadvertence on the part of the appellant not to treat each of the eligible undertakings (i.e. software development center) as a separate unit for computing deduction u/s 10A of the Act could not be used as estoppel to deny deduction legitimately admissible to the appellant under that Section. It is settled proposition that the assessing officer is required to correctly compute the taxable income of the appellant and is duty bound to suo moto allow deduction of claim, which is other wise lawfully admissible to the appellant. In any case, the various documents and information relating to the various undertakings, such as, copy of STPI registration documents, copy of custom bond register, separate lease deed, details of fixed assets, details of employees and year-wise details of turnover, etc., have placed on record.
Considering that all the aforesaid documents have been placed on record before the AO, the deduction lawfully admissible to the assessee, cannot be denied merely for the reason that the aforesaid conditions/requirements as provided in sub-section(2) of Section 10A of the Act were not examined by the assessing officer in the initial year, i.e, the year of formation of such undertaking."
5.19. Since the hearing in the present appeal was spread over on different dates as a part-heard matter, the Ld. AR was required to summarize his arguments 35 ITA No. 5623.Del.2010 referred to for our consideration so as to ensure that the arguments which were advanced in parts on different dates are not missed out. In terms of the said direction both the sides were directed to exchange the summary of arguments advanced respectively and thereafter file the same with the Bench. In view of the fact that the parties filed their written submissions on different dates the hearing was fixed for clarification so as to address the fact whether the respective submissions were available to both the sides. Subsequently, it was further found that the various orders and documents relied upon by the parties during the course of the hearing were found to be placed haphazardly and not compiled in any logical manner, consequently were not readily available on the files as either they were missing in both and/or either set as they had not been tagged by the Registry after the hearings, the parties were accordingly directed to ensure that the documents relied upon are properly tagged and numbered. Since originally the appeal was tagged alongwith other appeals of the assessee the Paper Book relatable to the years were segregated.
The documents being referred to are the documents which had been relied upon by the assessee over and above the main Paper Book containing documents 758 pages along with supplementary Paper Book consisting of 783 to 968 pages further accompanied by a Paper Book-III. These Paper Books of documents have further been supplemented by case law Paper Book running into 437 pages further supplemented by case law Vol-II & III Paper Book running up to 534 and 605 pages respectively; further fortified by case law Volume-V (pages 701 to 723) along with various loose documents and orders. Accordingly the parties were directed to ensure that the documents relied upon are complete and compiled in separate folders consisting of written submissions mutually exchanged by the assessee and department. The sorting was directed to take place in the presence of the Registry staff by the office staff of the Ld. AR and the special Counsel engaged for the Revenue. In this background it is necessary to also refer to the summary of 36 ITA No. 5623.Del.2010 arguments dated 11/7/2013 placed on record on behalf of the assessee. A perusal of the same shows that addressing Ground 2, and Ground 3 to 3.19 the action of the Revenue in denying the revised claim u/s 10A has been assailed. Referring to the relevant provision of the Act it was submitted that the Act provides for deduction to an undertaking which is established/set up in a software Technology Park and the statute does not specify the manner in which the approval/registration is to be issued by the STPI authorities. It has also been argued that the section does not provide for a separate license as a condition precedent for holding a unit operating in Software Technology Park as eligible for deduction under that section. 5.20 Reliance in these written submissions has again been placed on the case of the Textile Machinery Corporation Ltd. vs. CIT and it has been contended that the said case lays the following tests which have to be applied :-
" (1) Investment of substantial fresh capital in the industrial undertaking set up. (2) Employment of requisite labour therein, (3) manufacture or production of articles in the said undertaking, (4) earning of profits clearly attribute to the said new undertaking, and (5) above all, a separate and distinct identity of the industrial unit set up."
5.21. It has further been submitted that applying the principles laid down by the Apex Court in the said judgment, the Courts and Tribunals have held that the expansion of business resulted in "setting up"/ "coming into existence" of new industrial undertaking entitled to the tax holiday benefit under the relevant Sections) even in the absence of separate license cannot be denied. The following decisions were relied upon:-
"-Maral Overseas Ltd. Vs. ACIT: ITA Nos. 777 & 900 of 2004 & 295 & 356 of 2006 (ITAT Indore Special Bench)
-Patni Computer Systems Ltd. Vs. DCIT (ITa Nos. 426 & 1131/PN/06), approved by the Mumbai High Court vide order dated 28 February 2013 in ITA No. 1148 of 2012 reported in 215 Taxman 109\8.
-ACIT Vs. Symantec Software India (P) Ltd. (ITA Nos. 787 & 805/PN/09)
-Jayant Agro Organics Ltd., Akhandanad, Mumbai Vs. Jt. CIT (ITA Nos. 5439/Mum/01 dated 3/3/2006, 37 ITA No. 5623.Del.2010 5.22. It has also been summarized that the deduction u/s 10A is available for a period of 10 years following the initial assessment year in which the undertaking begins to produce computer software. It was submitted that even though deduction may not be claimed in the initial year(s) for variety of reasons, the assessee is not estopped from making the claim for deduction u/s10A of the Act in any of the subsequent years falling within the ten year period. The claim made in the subsequent years has to be adjudicated on merits, whcih view is supported by the following decisions:
- CIT Vs. Tata Communications Internet Services Ltd.: 204 Taxman 606 (Delhi HC)
-Gujrat Alkalies and Chemicals Ltd. Vs. CIT: ITa No. 141 of 1991 (Gujarat High Court)
-CIT VS. Seeyan Plywoods 190 ITR 564 (Kerala)
-CIT Gujarat-1 Vs. Satellite Engineering Ltd 113 ITR 208 (Gujarat)
-CIT Vs. Gopal Plastics (P.) Ltd 215 ITR 136 (Chennai)
-CIT Vs. Laxmi Metal Industries: 236 ITR 130 (All.)
-CIT Vs. Natraj Stationery Products (P) Ltd. 312 ITR 22 (Delhi) 5.23. In the summary of arguments advanced it has also been stated that the maintenance of separate books of accounts is not a requirement in Section 10A and there is no provision in the analogous section to sub-section (7) of section 80IA/80IB (13) of the Act. This view it has been urged is supported by the following decisions:-
• CIT Vs. Dunlop Rubber Co (India) Ltd: 107 ITR 182 (Cal.) [Section 84] • Mahindra Sintered Products Ltd. Vs. CIT: 177 ITR 111 (Bom) [Section 80J] • CIT VS. J. K. Synthetics Ltd: 182 ITR 125 (Del.) [Section 84] • CIT Vs. Hidn Lamps Ltd: 190 ITR 553 (All.) [Section 80J] • CIT Vs. Mazagaon Dock Ltd: 191 ITR460 (Bom) [Section 80J] • CIT Vs. Hindustan Malleables & Forgings Ltd: 191 ITR 70 (pat.) [Section 80J] • CIT Vs. Abirami Cotton Mills (P) Ltd: 220 ITR 84 (AP) [Section 80J] • CIT Vs. Technotive Eastern (P) Ltd: 255 ITR 253 (Gau) [Section 80-HH and 80I] • Rajasthan Petro Synthetics Ltd. Vs. DCIT: 60 ITD 682 (Del) [Section 80I] • Punjab Tractors Ltd. Vs. DCIT: 128 Taxman (Chd.) (Mag.) [Section 80I] • DCIT Vs. Arabian Exports Ltd: 109 TTJ 440 (Mum.) • CBDT Circular No. 1 of 2013 dated 17/1/2013 also clarifies the position to the aforesaid fact.38 ITA No. 5623.Del.2010
5.24. Reliance has been placed on the aforementioned certificate dated 24.10.2008 of Chennai STPI Authority which it is urged clarifies the position that each of the 31 undertakings in respect of which deduction u/s 10A of the Act has been claimed, are set up in Software Technology Park for which necessary certificate is issued by the STPI. Similar Certificate it is submitted has been issued by NOIDA STPI Authorities clarifying the nature of permission granted for setting up of the undertaking.
5.25 In this background it has been submitted that the deduction u/s 10A claimed in respect of 31 undertakings deserves to be allowed as there is no dispute about the units/undertakings fulfills the other conditions in sub-section (2) of Section 10A of the Act as such is entitled to claim deduction thereunder as each undertaking is a separate and distinct undertaking capable of existing independent of the other already set up units and the following criteria is fulfilled:
i. Separate physical location- premises, electric connection , etc (as demonstrated with reference to the photo album on record);
ii. Separate work force
iii. New plant and machinery
iv. Separate set of customers
v. Independent and separate organizational hierarchy
vi. Independently executing computer software development project
vii. Separate identifiable revenues/costs and profits.
6. The arguments in support of the orders on behalf of the Revenue were equally emphatic. The Special Counsel appointed by the Revenue Shri G. C. Srivastava also carried us through in detail through the assessment order and emphasizing the specific reasoning of the Assessing Officer on the basis of which the claim of the assessee submitted by way of revised return was not allowed by him. It was his vehement plea that in the facts of the present case the case of the assessee is not that the benefit of deduction claimed u/s 10A has been denied as a perusal of the assessment order would show that the deduction claimed has been allowed for 13 STPI Units as per the original claim put forth by the assessee. In the 39 ITA No. 5623.Del.2010 facts of the present case it was submitted the AO has only on full examination of facts, legal position and the relevant provisions come to the conclusion that the revised claim put forth by way of a revised return claiming deduction for 31 units instead of 13 units as was originally claimed was not allowable under law. As such it was his submission the only grievance posed by the assessee is that the claim for deduction should be computed for 31 units considering them 31 undertakings eligible for deduction and not considering 13 units eligible for deduction. The AO it was submitted has allowed deduction u/s 10A for the 13 units originally claimed which claim was based on the factual position accepted by the assessee over the years, as it is an undisputed fact that the additional units which the assessee is now claiming are entitled for deduction, have been formed and are part of the existing 13 undertakings some of which are in the 10th year some and some are in their 6th or 5th year of their claim of deduction. It has been argued relying upon the orders of the authorities below that the factual position of 13 units has been accepted by the assessee over the years and ignoring the same the claim now being advanced by the assessee cannot be allowed as it is aimed at acquiring twin benefit namely(i) i.e extended period of deduction i.e extended beyond the statutory limitation and (ii) higher claim of deduction by showing losses arising in some units separately and not setting off against the profits of the other. Accordingly ignoring its own accepted position it was argued the assessee's claim is not maintainable.
6.2. As noted in the earlier part of the order the hearing in the present appeal took place on various dates and consequently the departmental arguments advanced on different dates were also directed to be summed up by way of written submissions which were to be placed on record after mutually exchanging the submissions with the other side. Pursuant to this written submissions dated 23/7/2013 which contains the gist of the submissions of the revenue was subsequently filed and the appeal was 40 ITA No. 5623.Del.2010 fixed for clarification so as to ensure that the other side also had the benefit of the written submissions and thereafter the hearings were fixed for sorting the various documents on record on which the parties had relied which direction was complied with by the parties. Accordingly while referring to the arguments advanced by the Revenue in the hearing orally reference wherever necessary will be made also to the written submission filed on record.
6.3. In the light of the material available on record and the arguments advanced on behalf of the assessee. Ld. Special Counsel appearing for the Revenue has contended that the core question in the appeal is whether these units operating at different locations were infact set up as separate independent undertakings or had these units been set up as integral part of the existing units and represented merely expanded locations of the existing units. It was his submission that this is a critical issue and all other issues were merely incidental to the primary issue. The said question it has been argued can be answered from the stand taken by the assessee itself as the assessee itself is the best judge of its affairs. Referring to the record it was submitted that the assessee has consistently taken the stand over the years that these additional units (31-13) were mere extended locations of the existing units. In the circumstances it was argued the onus was placed heavily and squarely on the assessee issue to establish that these additional units were "set up" as a separate undertaking independent of the "mother undertaking". This question it was submitted has to be answered in the factual background where at the time of filing of the return which means up to the said date the assessee itself considered them to be integral part of the 13 undertakings. The said issue it was his submission was a matter of fact and is illustrated by the following consistent acts of the assessee:-
"(i) The intention of the assessee at the time when these new units were made operational.41 ITA No. 5623.Del.2010
(ii) The conduct of the assessee for all these years, whether these units were regarded by the assessee itself as separate undertakings or formed integral part of the existing units.
(iii) The treatment given to the these additional units in financial statements.
(iv) Treatment given to these so called "new" units by the Regulatory Authorities.
(v) Other circumstantial evidence throwing light on the nature and status of the units.
6.4. It was his submission that no doubt law permits an assessee to file a revised return of income if he discovers on omission in the returned filed. It was also his submission that the law also permits the assessee to file a revised return whereby the assessee may advance a claim of deduction which has escaped from being claimed in the original return filed. It was his submission that merely because filing of revised return is permissible it cannot be held that the revised claim in the revised return has to be necessarily accepted. The filing of a revised return cannot change the factual matrix. It was argued that once on facts it is to be held that a claim of deduction is not allowable on facts. The filing of a revised return will not make it allowable. It was argued that the assessee by itself has taken the position that the additional units which were as per assessee's accepted stand were only expanded locations of the existing undertakings they cannot now become separate undertakings at assessee's convenience. It was his submission that the endeavor is not to argue that the validity of the revised return is in dispute the thrust of the submission is that revised return by itself is of no consequence in determining the true nature and status of these units which will need to be determined in the light of the para meters stated above.
6.5. It was his submission that when an assessee proposes to expand the capacity of his business or to go into a different product line or service he has the option of either expanding the existing business or set up an independent and separate unit as an independent viable unit. This choice it was submitted has to be exercised by the 42 ITA No. 5623.Del.2010 assessee and it will determining whether the unit is a dependent unit or an independent and separate unit. The determination of the status of the unit will depend upon the fulfillment of the conditions set out in this regard. In the said background, it was his submission that it needs to be examined whether the additional units for which the claim has been advanced for the year by way of revised return were set up by the assessee company as an expanded location/work station/units of the existing undertaking or were these set up as independent separate viable units. In order to arrive at the true nature it was his submission that the following facts deserve special mention namely (i) application for setting up of the additional unit by the assessee.(ii) the accepted stand of the assessee taken by the assessee itself before the tax authorities etc. In the context of the same extract of the relevant portion from the gist of the argument placed by the revenue are record are extracted hereunder, for ready reference:-
" (i) Applications for setting up of the additional units:
Since the existing as also the additional units could be set up only with the permission of the regulatory authorities of STPI, the assessee company filed the applications for setting up new and independent units and also applications for operating the existing units from more than one location. Despite repeated requests in this regard, the assessee company has preferred not to file a copy of the application submitted to STPI authorities which would have given some indication of the fact whether these additional units were set up as separate/independent units or were merely the expanded work stations/location/integral units.
Revenue has placed before the Hon'ble Bench the notification issued by STPI authorities which provides:
a. The format for the application for a new unit which is entirely different from that of new locations for the existing undertakings.
b. The requirements (check list) for the two i.e. the expansion of the existing units and of the new independent undertakings are entirely different. In the case of former, only the permission for bonding of the place is required.
(May kindly refer to set of papers containing STPI notification) 43 ITA No. 5623.Del.2010 The assessee has deliberately withheld copies of such applications as these might clinch the issue against it as it was never the intention o the assessee to set up new and independent undertakings at the relevant point of time.
(emphasis provided by the Bench)
(ii) Stand of the assessee before tax authorities in earlier years and the treatment given by the AO:
From the day of inception of these so called additional units (which the Revenue considers as expanded work locations), these were never regarded by the assessee himself as independent or separate undertaking. The AO has also treated these as mere new locations forming integral part of the existing units. In fact, there has been no dispute between the Revenue and the assessee in this regard in all these years. This is evident from the following a. From the inception till date, these : new locations and bonded premises were regarded as part of the existing units in each of the assessment year preceding the year under appeal. This comes out very clearly from the fact that the claim of deduction was made and allowed by taking all such locations as part of the existing units.
b. The financial statements and the books of accounts for all these years were drawn on that basis. The question is not whether the assessee maintained separate books of accounts or the accounts were maintained in a manner or system which permitted the assessee to draw a separate Profit and Loss account for each unit. The vital fact which deserves consideration that the assessee company did in fact draw P & L account taking the additional units as an integral part of the existing units. The financial statements for all these years did clearly take the position that these additional units were neither separate nor independent.
c. The amount of depreciation charged to these units is not on the basis of the assets held by these units (as per notes to the original return of income d. The allocation of certain expenses does not demonstrate that these units functioned as independent units.
e. The Auditors have field Form No. 56 for the earlier years showing only 13 units ( or less) as independent undertakings. The Auditors further certify that the claim of the deduction has been correctly made.
f. Even for the whole of the Financial Year relevant to A. Y 2005-06, Forms No. 56 were filed along with the Original return of Income declaring that only 13 independent units were in operation during the year under appeal.44 ITA No. 5623.Del.2010
It is only much after the filing of Form No. 56 and the original return that the new claim was advanced and Form No. 56 (Fresh) for all the locations regarding these as separate units were file as an after thought.
This further establishes the fact that for the whole of the financial year when these units were in operation, these were regarded by the assessee itself as integral part of the existing units and not as separate/independent undertakings.
9) The Regulatory authorities have treated these units as part of existing units. This is evident from the fact that these locations have merely been given permission to obtain separate bonding of premises. Such bonding is needed both in respect of new units as also for the new location of the existing unit. The permission accorded by STPI authorities clearly indicate that permission was neither sought nor given for a new independent unit.
10) Various case laws relied upon by the assessee are not relevant to the issue involved in the present appeal. The question is not whether these additional units have the attributes of a new independent unit. The question is whether these were set up as new independent units or integral part of the existing units. The case of the TEXTILE MACHINERY on which great deal of reliance has been placed lays down, after enlisting certain major attributes of a new independent unit, that the new unit should be "above all a separate and distinct identity of the industrial unit set-up."
11) A judicial precedence can support a claim of the assessee if tenable in law but judicial precedents cannot be used to alter the factual matrix. If these additional units were not set up as independent and separate new units by the assessee, these cannot be regarded as such based on the strength of case laws. These case laws deal with situations where the facts were not in dispute and the claim was disallowed by the Revenue on one ground or the other.
12) In a converse situation, Revenue would never be permitted to alter the factual determination after examining a claim of deduction for five or six consecutive years. The same principle holds good for the assessee company as well."
(emphasis provided by the Bench) 6.6 Accordingly a reproduction of the brief , succinct and concise arguments placed on record by way of gist of submission advanced fully encapsulates the thrust of the departmental stand on the basis of which the vehement plea has been that in the facts of the present cases the assessee's claim has rightly been rejected by the AO and the DRP and the consistent stand on facts deserves to be upheld.
45 ITA No. 5623.Del.20107. We have heard the rival submissions and perused the material available on record. The decisions relied upon before us along with the judgments and decisions referred to in the orders of the authorities below have also been taken into consideration. At the cost of repetition we deem it appropriate to briefly refer to the undisputed facts namely that the assessee in the year under consideration following its own accepted past practice by filing a return lodged the claim of deduction u/s 10A for 13 units amounting to Rs.257,24,87,070/- duly supported by 13 Form 56 F Certificates for these units which claim has been allowed. It is a matter of record that the said claim was revised by filing a revised return. The Ld. AR has consistently argued before the AO, the DRP as well as before us that the law permits the filing of revised return within the stipulated time which has been done as such the assessee's action on this count cannot be faulted with. The revised return it has been contended is duly supported with the requisite numbers of 31certificates in Form 56F duly signed by the CA which is the legal requirement. It has been the stand of the assessee that the term "undertaking" has not been defined in the relevant provision and in the circumstances relying on the legal definition of the term and as has been understood on a consideration of various judgments considering the analogous provisions it has been argued that the term means any unit which is a viable unit capable of existing independently, capable of conducting business in an independent manner and is not linked to other units or dependent on them for doing its business is an undertaking if it exists in the STPI Zone and in the case of the assessee it has been argued that the 31 units exist as independent viable units whose accounts are capable of being culled out as such the claim should be allowed on verification. It has been emphasized that the units exist at separate locations as such this fact itself demonstrates that these are separate undertaking where separate lease deeds are available and the customs authorities have bonded these separate premises wherein fresh capital has been introduced and these cater to different and separate 46 ITA No. 5623.Del.2010 clients as such the units are capable of existing independently in their own right. On behalf of the assessee it has also been claimed that it is a matter of record that the assessee has over the years kept the department informed about the different locations of these units for which purpose our attention has been invited to Supplementary paper book page no-826 to 831 specific page 827 which is a photocopy of the assessment order for 1999-2000 A.year. A perusal of the same shows that it is an incomplete copy of the assessment order. Referring to the said page it has been claimed that setting up of these new units was in the knowledge of the department. The Ld. Special Counsel for the Revenue referring to the very same page emphasized that nothing much turns on this as the AO has given a finding that unit-wise computation derived from these was not provided by the assessee. For ready-reference we extract the relevant portions from the paper book page-826 and 827 of the assessment order:-
INCOME TAX DEPARTMENT Name and address of assessee : M/s HCL Technologies Ltd.
806-808, Sidhartha 96, Nehru Place, New Delhi.
Assessment Year : 1999-00
PAN/GIR No. : AAACH0435P
Status : Company
Circle : 12(1)
Residential Status : Resident
P.Y. ending : 31.3.1999
Dates of Hearing : 19.02.02, 11.03.02, 21.03.02 & 23.03.02
Date of Order : 28.03.2002
Section in which order passed : 143(3)
"Return of income was filed on 31.12.1999 declaring income of "NIL" after claim of exemption under section 10A for its entire income of Rs.83,39,03,218/-. The return was processed on 31.5.2000 under section 143(1) at NIL income./ A notice under section 143(2) was issued on 27.12.2000 for scrutiny of the case. In response to the notice, Shri Raman Sridhar, General Manager (Taxation) of the assessee company appeared and furnished requisitions details.47 ITA No. 5623.Del.2010
2. The nature of the business of the assessee is software development as per part -IV of the Return of Income in response to specific query regarding the details of different STP Units, profit derived from various units and allowability of deduction in respect of various sources of income, it has been submitted by Mr. Sridhar:-
"with regard to the information on undertaking wise profit and loss, we would like to state that we have already provided a computation giving the detailed analysis of the profit arising out of the 10A activities and the other income to be considered separately.
It would also not be out of view to state that the activities/transactions of HCL Technologies are only related to export of software.
The Finance Act, 2000 w.e.f. assessment year 2001-02 has amended the provisions of section 10A and has clearly included a concept of a certificate which has been drawn up with the provisions of this section. However, this insertion in sub section 5 is applicable only from assessment year 2001-02".
The assessee has given distinctive addresses of 15 business premises, viz.
1. Client/Server Applications Division, Gurgaon.
2. Advance Technologies Centre, Gurgaon.
3. Netcentric Technologies Division, Noida.
4. Mircro processor Software Group, Noida.
5. Internet Application Centre, Noida.
6. Remote Network Management Centre, Noida.
7. Core Technologies Division, Chennai.
8. Networking Products Division, Chennai.
9. Application Solutions Development Centre, Chennai.
10. Integrated Technologies Centre, Chennai.
11. Embedded Software Centre, Chennai.
12. CRM Centre, Chennai.
13. Cisco Centre, Chennai.
14. Software Engineering Solutions Centre, Chennai.
15. Global Resources Group, Chennai.
(The above portion highlighted is emphasized by the Ld. AR) However, the assessee has not submitted any information regarding unit wise computation of profits derived from different undertakings and only stated that the entire profits are related to exports. Therefore, the examination of various sources of income and the claim of exemption under section 10A is required to be made."
(This portion has been emphasized by the Revenue) 48 ITA No. 5623.Del.2010 7.1. On behalf of the Revenue referring to the above extract and also the categoric finding recorded in the assessment order it has been argued that unit wise computation of these extended units has never been provided. Referring to the record it has been argued that it is an admitted fact that for these extended units the assessee claimed deduction qua these extended units and never claimed that these were newly set up undertakings and not extended units . It is also an admitted fact that accepting the past settled position in regard to the status of these units as extended units of the specific undertakings original return was filed. It is also an accepted fact that only by way of a revised return for the very first time it has been claimed that these extended units at different locations were in fact fully meeting the criteria of being designated as an independent undertaking as enumerated by various judgements and orders. On the basis of which considering the provisions it has been argued by the assessee that the requirements are fully met. The reliance placed on legal precedents it has been argued on behalf of the Revenue so as to seek to re- designate the status of these units some of which it has been emphasized are in the fag end of their claim should not be allowed as it would not only extend the statutory period which would be against the principles of law but would also vary the deduction being claimed which would not be correct. The contention put forth is that the approach to pick a stray sentence or ratio decidendi from decisions which operate on different facts would be of no relevance. In the facts of the present case it has been emphasized the assessee is trying to extend the period of claim of deduction beyond the statutory limitation and also vary the claim by resorting to compute the profits of the extended units separately which it has been submitted is against legal ethics. It has been submitted that the AO has given various reasons and met each argument of the assessee as to why this cannot be accepted not only on the reasoning that the assessee is resiling from its own stated position in the fag end of the period but also on the ground that such an action is against the letter and spirit of law. On 49 ITA No. 5623.Del.2010 consideration we find ourselves fully in support of the arguments advanced by the Revenue. Our attention has been invited to the findings that it is not possible to examine and verify the claim at this belated stage and the assessee cannot expect the Revenue to work out the profits separately for these extended units which details have never been provided as assessee over the years treated them as part of the existing units. The consistent stand of the Revenue while referring to findings recorded in the assessment order reproduced in the earlier part of this order that the criteria on which emphasis is being laid as having been settled by legal precedents applies in equal force to setting up expanded locations as permission from STPI authorities is required therein also and the fact that these extended locations permission is endorsed on the 13 licenses supports the conclusion that permission to expand the licensed undertaking was granted. It is a matter of record that nothing to rebut this consistent stand has been placed on record by the assessee before us so as to persuade us to come to a contrary finding. Similarly it has been argued that the other criteria namely introduction of capital will not by itself establish a new undertaking being set up as it is required even for expansion. It has been submitted that only the assessee knows whether it was expansion or a new undertaking and having led the department to accept that it is an expansion it cannot now be allowed to insist that it should now be treated as a fresh undertaking having been set up 7 or 10 years ago as this would be a travesty of justice. On examination and consideration of facts, documents, provisions and judgements, we find ourselves in concurrence with the departmental stand. The Revenue has also argued as has been set out in the earlier part of this order in greater detail while referring to the assessment order and on consideration of the decisions and judgement cited, we also find ourselves in agreement with the submission of the department as it would not only be against legal ethics and contrary to settled facts but would also amount to 50 ITA No. 5623.Del.2010 travesty of justice. In the circumstances the claim put forth by way of a revised claim we find has rightly been disallowed.
7.2. While arriving at the said conclusion we have taken into consideration the decisions cited. It may be appropriate to refer to judgement of the Apex Court in the case of Textiles Machinery Corporation Ltd.(cited supra) on which heavy reliance has been placed by the assessee. A perusal of the principle laid down therein with which there can be no quarrel it is seen that the same has been settled in entirely different facts and circumstances and does not help the assessee in any manner.. The following extract from the head note of the said judgement brings our the material facts before the Hon'ble Court, these have been bold texted by us for emphasis:-
" The appellant, a heavy engineering concern manufacturing boilers, machinery parts, wagons, etc., set up two new units, a steel foundry division and jute mill division. The steel foundry division started manufacturing some castings, which the appellant was previously buying from the market, but the castings were mostly used by the other existing divisions of the appellant itself. Raw materials were supplied to the jute mill division by the boiler division of the appellant and after machining and forging, the parts were given back by the jute mill division to the boiler division. The appellant claimed exemption from tax u/s 15C of the India Income-tax, 1922, in respect of the profits form the steel foundry division for the assessment years 1958-59 and 1959-60, and in respect of the profits from the jute mill division for the assessment year 1959-60. The income-tax authorities held that the two units were formed by reconstruction of the business already existing within the meaning of section 15C(i); but the Appellate Tribunal, on appeal, held that the appellant was entitled to the relief u/s 15C because the two divisions were new industrial undertakings and that they were not formed by reconstruction of the existing business. The Tribunal found that the machinery in the two divisions were new, they were housed in a separate building and that industrial licenses had to be obtained for manufacturing the parts; that the existing business of the appellant consisted of manufacturing boilers, wagons, etc., and for that purpose the appellant was purchasing the parts, forgings and castings from outside; and that the business of the new units was to manufacture these very parts; and that, therefore, it could not be said that the new undertakings were formed out of the existing business to come within the mischief of section 15C (2)(i). On a reference, the High Court held that the change of producing one's own goods systematically used in the existing business instead of buying them from outside would only be a 51 ITA No. 5623.Del.2010 reconstruction of an existing business within the meaning of section 15C (2)(i). On appeal to the Supreme Court:
Held, reversing the decision of the High Court , that the steel foundry division and the jute mill division were not formed by the reconstruction of the business already in existence within the meaning of Section 15C (2)(i) and that, therefore, the appellant was entitled to the exemption claimed.
For the reconstruction of an existing business there must be transfer of the assets of the existing business to the new industrial undertaking.
A new activity launched by the assessee by establishing new plants and machinery by investing substantial funds may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities which may feed the old business. These products may be consumed by the assessee in his old business or may be sold in the open market. One thing is certain that the new undertaking must be an integrated unit by itself wherein articles are produced and at least a minimum of ten person with the aid of power and a minimum of twenty persons without the aid of power have been employed. Such a new industrially recognizable unit of an assessee cannot be said to be reconstruction of his ld business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. For the purpose of section 15C the industrial units set up must be new in the sense that new plants and machinery are erected for producing either the same commodities or some distinct commodities. In order to deny the benefit of section 15C the new undertaking must be formed by reconstruction of the old business."
(emphasis provided by the Bench) 7.3. On a perusal of the above it is seen that the conclusion that deduction u/s 15C of the Income Tax Act 1922 was allowable was arrived at dismissing the plea of the Revenue who had proceeded to deny the same for the reason that it was considered to be an act of reconstitution of existing business for an assessee who was an engineering concern manufacturing boilers etc. The assessee after setting up Steel Foundry Division and Jute Mill Division started consuming their products instead of procuring them from the market as was done in the past. Rejecting the reasoning of the Revenue their Lordships held that "reconstruction" presupposes that transfer of assets of the existing business took place which was not a fact in that case as fresh capital had been introduced. It was also held that the fact that the product of the 52 ITA No. 5623.Del.2010 two divisions was utilized by the assessee who earlier was purchasing it from outsiders was not a relevant criteria for denying the claim. Accordingly the well settled principle in the said judgment in the facts of the assessee's case has no bearing on the issue at hand as in the facts of the present case introduction of fresh capital is required even for expanding an existing business to a different location which is permitted by STPI Authorities. The examining of this claim in the fag end of the period whose feasibility and practicability has been questioned by the Revenue and whose working has never been demonstrated by the assessee after a lapse of so many years is not a principle which has been laid down in Textiles Machinery. In the facts of the present case the assessee by its own conduct has opted and exercised its rights in such a manner that it has presented these expanded locations as expansions over the years and now in the fag end would want to re- designate them as independent units which claim by very flux of time is not capable of being examined in the fag end of the period. Accordingly on facts we hold the claim has rightly been rejected. Similarly it has been emphasized that in order to meet the STPI regulations even expanded units need to be custom bonded. On consideration we find ourselves in agreement with the submission advanced on behalf of the Revenue that placing reliance on decisions where introduction of fresh capital has been laid down as a relevant criteria and where the increased work force has been considered to be a relevant criteria etc. would in the facts of the present case be of no assistance to hold that the 31 units were viable independent undertaking within the meaning of the Act and the relevant provisions as by assessee's own choice they have been treated over the years as part of existing undertakings and in the fag end of the period for claiming deduction their status cannot be changed by selectively reading the principles in cases where the material facts are entirely distinguishable. It is a matter of fact that in none of the cases cited the peculiar facts of the present case have been considered. It cannot be over-
53 ITA No. 5623.Del.2010emphasized that settled legal principles can and should be resorted to only where pari-materia of the facts qua the case and hand is established. In the facts of the present case the facts which the assessee seeks to unsettle have become settled facts due to the conscious, consistent and informed actions of the assessee and they cannot be wished away. The reliance placed on case laws in different context on facts and circumstances which are entirely distinguishable is of no help. It may not be out of place to refer to the observation of Sabhyasachi Mukharji J., stated in Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402 (SC):-
"......A precedent is an authority only for what it actually decides and not for what may remotely or even logically follow from it."
7.3.1. Reference may also be made to the celebrated judgement of the Hon'ble Apex Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297/64 Taxman 442 (SC) that it is neither desirable nor permissible to pick out a word or a sentence from the judgement of the Hon'ble Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared. This view had been expressed by the Apex Court way back in 1968 while referring to Lord Halsbury LC From Quiun V. Leathem [1901] AC 495 (HL), at page 506; in K.Ramakrishnan (supra) and State of Orissa v. Sudhansu Shekhar Misra AIR 1968 SC 647.
".... There are two observations of a general character which I wish to make, and one is to repeat what I have very often said before, that every judgement must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expression which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. The other is that a case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seen to follow logically from it. Such a mode of reasoning assumes that the law is necessarily a logical code, whereas every lawyer must acknowledge that the law is not always logical at all."54 ITA No. 5623.Del.2010
7.4. In the circumstances we find no hesitation in agreeing with the contention of the Ld. Special Counsel for the Revenue who has contended at the cost of repetition that firstly by way of the revised return, the assessee has attempted to seek exclusion of the units which were loss making units as a result of which the assessee has now sought to claim deduction of 275.56 crore odd instead of 257.24 crore odd which was originally claimed. The said argument cannot be faulted with. It has also been his stand that the claim of the assessee is not genuine. Apart from the other reasons which are available in the orders on which heavy reliance has been placed by the Revenue and on consideration we find the reasons cogent, relevant and acceptable, it has also been his stand that having separate locations for the unit does not mean these separate expanded locations become separate undertaking as an undertaking in the STPI Zone even for expansion purpose can expand only if permission is granted by the STPI authorities which has been granted over the years and the assessee over the years has treated these expanded locations as expansions and only now in some cases after a lapse of five years or seven years and even in the last year would now want the department to re-look at the entire facts right from the first year of these expanded centres in order to ascertain whether five years or seven years ago or for that matter 10 years ago the expanded locations were capable of being called "independent stand alone units" as envisaged in Textiles Machineries case and other such decisions and orders. Relying on the findings recorded in the assessment order upheld by the DRP it has been contended that such an inquiry is difficult to make after so many years and even when enquired into it may not be possible to conclusively decided the same after so many years. The said reasoning cannot be faulted with. We also find force in the departmental stand keeping the peculiar facts and circumstances of the present case based on the findings recorded in the assessment order that the need and necessity for the same does not arise since it is the assessee who is the best judge of its internal affairs and it is the assessee who 55 ITA No. 5623.Del.2010 has consistently taken a decision as per facts exclusively available to it in its personal domain on the basis of which the assessee has chosen to treat the expanded units as part of the 13 units and we agree that referring to legal precedents will not change these accepted and settled facts.
7.5. Examining the argument that the revised claim is maintainable as due to "inadvertent mistake" correct claim could not be made we on consideration hold that this argument has no legs to stand on as the plausibility of inadvertent mistake of such a nature and magnitude could be allowed to be continued for almost 10 years in some cases and 5 to 7 years in the others requires the swallowing of a huge pill of naivety in order to make it acceptable. Even the argument that the inadvertent mistake is now by way of a revised return is being corrected based on "legal advise"
also cannot be accepted. The attempt to change the accepted, settled facts which have consciously and consistently been put forth by the assessee backed by certified Form 56F Certificates by C.A backing the assessee's claim consistently over the years cannot be termed inadvertent mistake or omission. With hindsight it is not disputed that a study may show that affairs of the business could have been arranged differently but once the arrangement is made the authorities and the parties act on the arrangements made and simply because after a few years a study is done which shows how the affairs could have been better arranged as per experts advise then the arrangement cannot be upset because it does not suit the assessee relying on precedents even if it is demonstrated that had the expansion been claimed as setting up a new undertaking then the re-arrangement would have been more beneficial and profitable or tax saving to the assessee as settled facts cannot be unsettled only because they with hindsight did not prove to be more suitable. As observed it is not only against legal norms and ethics it would tantamount to a situation where it would lead to travesty of justice. The reports, study have their own role and relevance 56 ITA No. 5623.Del.2010 however adjudication necessitates marshalling the accepted facts and not unsettling the settled facts. The revised return based on legal advise in the peculiar facts and circumstances of the present case cannot unsettle the settled facts and neither can reliance placed on legal precedents and case law in entirely different context warrant such an action. It has also been canvassed that it is for the AO to advise the assessee. The argument made in passing has no merit as the claim is put-forth by the assessee based on its personal knowledge and being the best judge of its affairs and having the benefit of full facts about the nature of permission being sought as to whether it was for expansion or setting up a new undertaking cannot expect the AO to advise him whether it is an expansion or setting up a new undertaking. The assessee having taken a prudent informed business decision cannot be allowed to turn around and claim at the fag end of the period of allowable deduction that the AO should have advised him differently. The circulars and decisions of the Court do not cast any such duty on the AO and infact the settled legal position is that the wisdom and prudence of the business decision of the assessee cannot be questioned by the Revenue.
7.6. Before parting we deem it appropriate to record that there is no document available on record on the basis of which an inference can be drawn that the assessee's application before the STPI Authorities was for setting up a new undertaking and not for expanding an existing undertaking. The reliance placed on the Certificate of STPI, Chennai is of no help as it is ambiguously worded. The record shows that assessee has never placed on record the document seeking STPI permission either before the AO nor before the DRP and as observed has also not even been placed before us. In fact the assessee has never even pleaded that any such document was available with it despite the pointed arguments of the Revenue. It is curious to note that no attempt in the course of the hearings has been made on 57 ITA No. 5623.Del.2010 behalf of the assessee to either seek permission to place any such evidence on record or seek permission to file the same before the AO. Considering the entirety of the facts, circumstances, decisions, findings and pleadings of the parties, we are inclined to agree with the departmental stand that had any such document been available with the assessee then attempt to bring the same on record would have been done.
7.7. On examining the claim of the assessee on facts we find that the authorities below have come to a correct conclusion as the claim now put forth by way of a revised return relying on judgements which have been rendered on facts peculiar to their own cannot be said to lay down a legally binding precedent that the same lay down a precedent based on which the assessee can resile from its stated position. The stated position being referred to herein does not refer to the filing of returns in one of two years but at times for 10 years; and 7 years and 5 years or so. Accordingly for the detailed reason given hereinabove the grounds raised by the assessee qua the issue is dismissed.
8. On a perusal of Ground No-4 to 4.4 agitated by the assessee it is seen that the assessee has assailed the action of the AO in calculating the amount of deduction allowable u/s 10A of the activity by reducing the expenses incurred in foreign currency for providing technical services. The draft order on this point was confirmed by the DRP leading to the passing of the order under challenge. It is seen that the issue had been decided in assessee's favour by the Tribunal in the immediately preceding assessment year which was not unsettled by the Hon'ble High Court. Only because SLP filing was under consideration the issue was kept alive by the AO. In the afore-mentioned peculiar facts and circumstances the reliance by the assessee on the order dated 23.01.2009 in ITA Nos.-3199 & 3144/Del/07) which view was also taken in 2003-04 assessment year and considering the departmental stand wherein reliance is placed on the orders of the 58 ITA No. 5623.Del.2010 authorities below and no contrary decision or judgement is cited disputing the view taken in the order to deviate from the stand taken by the ITAT we deem it appropriate since facts, circumstances and reasoning is identical to restore the issue back to the AO by allowing the ground raised and directing the AO to grant necessary relief following the orders of the ITAT wherein we note that the view take in 2003-04 A.Year has been considered by the Hon'ble High Court.
9. The next issue addressed by the assessee is set out in Ground No-5 to 5.2 wherein the action of the Assessing Officer has been assailed on the ground that the AO has from the calculation of deduction allowable u/s 10A of the Act reduced the "data link charges" incurred for delivery of computer software outside India from "Export Turnover" without making corresponding adjustment from the "Total Turnover". The said issue was also decided by the AO against the assessee in order to keep the issue alive despite the fact that it was brought to the notice of the AO that it had been decided in assessee's favour by the Tribunal in the assessee's own case for 2004-05 assessment year. The Ld. Special Counsel herein also placed reliance upon the assessment order and the factual issue having been considered by the Tribunal was not disputed. In the circumstances respectfully following the order of the Tribunal in 2004-05 assessment year, the ground raised is allowed and the AO is directed to grant necessary relief.
10. The next issue agitated by the assessee is the disallowance made by the AO amounting to Rs.1,05,07,741/- u/s 14A r.w. Rule 8D holding the disallowance made by the assessee amounting to Rs.44,55,082/- as not sufficient resulting in the addition of Rs.60,52,659/-. A perusal of the record shows that the assessee had earned tax free income of Rs.17,91,53,673/- on account of tax free interest on securities. The AO after considering the assessee's objections made the addition u/s 14A and invoking Rule 8D. Since the issue is no longer res integra after the decision of the Hon'ble High Court in the case of Maxopp Investment vs CIT (2012) 59 ITA No. 5623.Del.2010 347 ITR 272 wherein it has been categorically held that sub-sections (2) and (3) of section 14A and Rule 8D operation prospective from 2007-08 A. Years and the year under consideration is 2005-06 A.Year accordingly the issue is restored to the AO to re-determine the same in the light of the directions given by the Jurisdictional High Court in para 42 of the said judgement. Ground No.-6 to 6.2 are accordingly statistically allowed.
11. Qua the Ground No-7 to 7.1, it is found that the assessee has assailed the action of the AO in allowing depreciation @ 15% instead of 25% as applicable to plant & machinery on various items of electrical installation. The issue was challenged before the DRP who directed the AO to allow the claim after verification as to whether or not the items of electrical installation are part of the plant & machinery. A perusal of the record shows that the said direction has not been followed accordingly we restore the issue back to the AO with the direction to decide the same in accordance with law after giving the assessee a reasonable opportunity of being heard.
12. Qua the next issue agitated by the assessee vide Ground No-8, it is found that the assessee by way of its revised return of income has claimed deduction of Rs.6,20,012/- on account of expenditure incurred for the purpose of earning of income subject to tax under the head "other sources" which claim was not allowed by the AO. The DRP while considering the issue were of the view that outrightly the claim of the assessee could not be accepted being of the view that the said expenditure had only been culled out from the P&L A/c for separately claiming it as a deduction against the income from other sources. They were of the view that the said expenditure would have already been debited in some head under the "P&L A/c" thus the said authority was of the view that unless the assessee showed that the said expenditure had not already been claimed under some other head of income the claim could not be allowed. In the circumstances, the AO was directed to grant an 60 ITA No. 5623.Del.2010 opportunity to the assessee to show that expenditure is not claimed against the income under any other head and in that eventuality will allow the expenditure from income from other sources. A perusal of the assessment order u/s 143(3) r.w.s 144(c)(13) shows that incompliance of the direction of the DRP opportunity was given and the assessee's submissions dated 25.10.2010 were considered however it was found that the assessee could not substantiate its claim accordingly it was rejected. Assailing this action vide its submissions advanced through "Broad submissions" dated 01.02.2012. Following claim has been put forth before us:-
"The appellant in the relevant previous year has accrued expenditure amounting to Rs.6,20,012/- being in the nature of expenses incurred by the appellant for the purpose of earning of the incomes subject to tax under the head "other sources".
The details in respect of such expenses have been placed on record before the assessing officer. The above claim was made by the appellant in the revised return of income.
The assessing officer, however, proceeded to compute the income fo the appellant with reference to the original return of income and accordingly, inadvertently did not allow deduction of the said expenditure of Rs.6,20,012/- against the income from other sources in term of section 57(iii) of the Act which the appellant had claimed in the revised return of income.
The assessing officer also made the disallowance of Rs.6,20.012/- representing the deduction which the appellant had claimed in the revised return under section 57(iii) of the Act on account of expenses incurred wholly and exclusively for earning the incomes taxable under the head "other incomes" even without raising any query in this regard."
12.1. The Special Counsel of the Revenue places reliance upon the impugned order on the basis of which it was contended that on facts the assessee has not been able to point any infirmity in the impugned order as such the same deserves to be allowed. 12.2. We have heard the rival submissions and perused the material available on record. In the light of the facts available on record we find no merit in the arguments advanced by the assessee as nothing has been placed before us to show that the claim of the assessee was allowable on facts and the conclusion arrived at on facts is incorrect accordingly Ground No-8 of the assessee is dismissed.
61 ITA No. 5623.Del.201012.3. Ground No-9 raised by the assessee is consequential as such requires no adjudication.
13. In the result the appeal of the assessee is partly allowed for statistical purposes.
The order is pronounced in the open court on 30th of May 2014.
Sd/- Sd/-
(S.V.MEHROTRA) (DIVA SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 30/05/2014
*Amit Kumar/R.Naheed*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI