DY CIT , CIRCLE-8(2)(1), MUMBAI vs. M/S SIEMENS TECHNOLOGY & SERVICES P. LTD ( FORMERLY KNOWN AS SIEMENS INFORMATION SYSTEMS LTD.), MUMBAI

आदेश / O R D E R PER BENCH:

These appeals in ITA No. 286/Mum/2021 & 287/Mum/2021 for A.Y.2003-04 & 2004-05 arises out of the order by the ld. Commissioner of Income Tax (Appeals)- 15 Mumbai in appeal No.CIT(A)15/10829/2019-20, CIT(A)15/10034/2019-20, dated 31/07/2020 & 17/02/2020 respectively (ld. CIT(A) in short) against the

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order of assessment passed u/s.143(3) r.w.s 147 of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 03/04/2012 by the ld. Asst. Commissioner of Income Tax, Circle 7(2), Mumbai (hereinafter referred to as ld. AO).

Identical issues are involved in both these appeals, hence, they are taken up together and disposed of by this common order for the sake of convenience.

2.1. The grounds raised by the Revenue for A.Y.2004-05 are as under:-

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was about 48% and the direct cost of sale and service pertaining to such unit was also 47% of total direct costs. It was also explained that the indirect expenses was lower in respect of 10A unit except rent donation and provision of doubtful debt which were more or less in the nature of direct expenses. Thereafter the A.O stated that the assessee submitted on 23.11.2009 that the claim of depreciation in respect of unit claiming deduction u/s 10A was wrong and it had surrendered its 10A claim to the extent of Rs.305,35,719/-. The A.O also stated that assessee submitted that depreciation pertaining to 10A unit was claimed less in return/tax audit report by Rs.305,35,719/-. Thereafter the A.O mentioned that on 28.10.2009 the assessee filed consolidated working of deduction u/s 10A and claimed depreciation as per I.T. Act at Rs.942,50,815/-. Since it was more than the figure as per tax audit report of Rs.629,87,877/-, therefore assessee on19.11.2009 was asked to provide unit wise working of 10A deduction. The unit wise claim of depreciation made by the assessee is as under:- As per submission dated As per Tax Audit Report According 23.11.2009 page 642 to submission dated 23.11.2009 page 642 Depreciation 10A Non 10A Total 10A Non 10A Total Regular 94250815 134369548 228620363 63715096 164905267 228620363 SVA 1206868 998642 2205510 1206868 998642 2205510 Total 95457683 135368190 230825873 94250815 134369548 228620363

As per Tax Audit Report As per Tax Audit Report according According to submission dated to compilation from TAR certified 23.11.2009 page 642 by assessee in submission dated 28.10.2009 page 144 (Placed as Annexure E) 10A Non 10A Total 10A Non 10A Total Depreciation 63715096 164905267 228620363 62987877 165632486 228620363 Regular 1206868 998642 2205510 1206868 996842 2205510 SVA 94250815 134369548 228620363 64194745 166631128 230825873 Total 63715096 164905267 228620363 62987877 165632486 228620363

After referring the aforesaid submission the A.O stated that the assessee had increased the depreciation as per I.T. Act in respect of 10A unit to Rs.942,50,815/- from Rs.637,15,096/- originally claimed. The A.O also pointed out that all the units were engaged in similar business and many non 10A units were earlier eligible for 10A deduction, therefore, there was no reason for such a large variation in profit. Therefore, the A.O stated that assessee is not eligible for claiming 10A deduction for following reasons: “1. Units are not independent units and constitute one integrated unit. No independent accounts of units are maintained. 2. There is complete overlapping of work and use of resources amongst 3.

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units through leased lines. The Tax Audit report and audit report u/s 10A is not correct or assessee 4. is claiming expenses/depreciation of 10A units in non 10A units. 5. Several non 10A activities are being carried on from 10A units which is evident from service tax returns. The assessee has declined to file a reconciliation of Service Tax 6. /VAT returns with IT return. It claims in letter dated 04/09/09 that Revenue recognition is different and reconciliation cannot be made. Again it says in letter dated 12/11/09 that, any attempt to reconcile will lead to misleading results and says that it will take time of eight weeks i.e. beyond the limitation date. Interestingly more than 8 weeks had passed by that time since the submission letter dated 04/09/09. Since both these taxes are location wise, the reconciliation would have shown the overlapping of receipts/expenses.” 3. Aggrieved, the assssee filed the appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. The relevant part of the decision of CIT(A) is as under: “I have considered the submission made by the appellant, the reasons recorded by the AO, the remand reports submitted by the AO and rejoinders to the remand report filed by the appellant. So far as the issue of admission of the additional evidence filed by the appellant is concerned, the same is required to be admitted because adequate opportunity of being heard was not provided to the appellant by the AO. It is seen from the records that various details for finalisation of assessment proceedings were called from the appellant vide letter dated 23/11/2009 and the assessment order was passed by the AO on 30/11/2009 As explained by the appellant, the appellant had effectively two days for collection and submission of the details due to vacations in the intervening period. Moreover, the details were to be collected from various units located all over the India and thus, the submission of details was not humanly possible. Further, the additional evidence submitted by the appellant is also required to be looked into for deciding the issues in appeal, therefore, additional evidence filed by the appellant is being admitted for deciding this appeal. As can be seen from the remand reports quoted above, despite adequate opportunity being provided, for reasons best known to him, the AO has refused to examine the additional evidence submitted by the appellant on merits. Therefore, the issues are being decided after considering the findings in the assessment order, the submission made by the appellant and the documentary evidences submitted by the appellant.

From the submission of the appellant and the documentary evidences submitted following facts are evident.

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different and there is no possibility of billing of output of one unit to another because customer base as well as nature of work is different. 9. In case of 10A eligible units, the billings are mostly on work hours basis whereas in non-10 A units the billing is on lump-sum basis for the entire work being done. Number of employees in domestic units is high as compared to 10 A eligible 10. units. Since domestic units are older, employees in general are also working for the company for a longer period of time. As regards various other observations of the AO in the assessment order, the appellant has clarified that it is not required to maintain separate books of accounts for each eligible unit for claiming deduction u/s 10 A of the IT Act, as per various case laws as well as as per CBDT Circular No. 1/2013. It is sufficient to maintain separate set of accounts for each unit. The appellant has also submitted that since each 10A eligible unit has its own customer base and there is no overlapping of work in units, mere use of common facilities does not disentitle the appellant from claiming deduction u/s 10 A. The appellant has also pointed out that requirement of Service tax Act are different and service tax registration has been granted by Service Tax Authorities location wise and not unit wise. Therefore service tax returns are filed city wise and not unit wise. Moreover, basis of chargeability of service tax, VAT and income tax is different and therefore reconciliation of returns filed under service tax/VAT/income tax is not feasible. When no such details were required to be maintained by the appellant, no adverse view cannot be taken for not maintenance of the same; So far as mistake in Tax audit report is concerned, the appellant has clarified that by the mistake of the Auditor higher depreciation was booked for non 10 A units in the Tax audit report. When the mistake came to the notice of the appellant, the correct amount of depreciation was claimed in the return of income by the appellant on its own While issuing audit report under section 10 A, in Form 56F, the Auditor had considered the correct depreciation for the purpose of computing section 10A deduction. The appellant has also submitted a reconciliation of various figures. Considering the facts mentioned above, I‟m of the opinion that the AO has not brought anything on record to suggest that the appellant is not fulfilling any condition mentioned in sub section (2) of section 10 A of the IT Act. The units in respect of which deduction under section 10 A is being claimed by the appellant are not formed by splitting up or to the construction of a business which was already in existence, they are not formed by a transfer of machinery or plant previously used for any purpose and they have begun manufacture/production of computer software in the software technology Park after first April 1994. In view of these facts, I'm of the opinion that the AO was not justified in denying the deduction u/s 10 A to the appellant in respect of the 9 units to for which it was claimed by the appellant. The AO is directed to allow the deduction under section 10 A to the appellant in respect of all the STPI units in respect of which the appellant has claimed the same.

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It will not be cut of place to mention that the issue is covered in favour of the appellant by the decision of jurisdictional High Court dated 26/07/2016, for A.Y. 2005 06, in Income Tax Appeal No 63 of 2016, in the case of Pr.CIT Vs Hinduja Ventures Ltd. where honourable High Court has allowed the deduction u/s 10 A to the appellant even though the STPI approval was for extension of existing unit whereas the appellant is holding STPI approval of new facility in respect of each unit. The decision of honourable High Court is reproduced hereunder: - “2. The assessee claims that it has four units engaged in the business of IT and IT enabled services. The assessee claimed deduction under Section 104 of the Income Tax Act (hereinafter referred to as the Act) in respect of Unit II and Unit III. The Assessing Officer did not allow deduction under Section 104 In appeal the Commissioner (Appeals) called for the remand report. The Assessing Officer submitted the remand report. The remand report favoured the assessee. However, the Commissioner (Appeals) dismissed the appeal. The assessee filed an appeal before the Tribunal The Tribunal allowed the appeal and held that Unit II and Unit III are entitled for the benefit under Section 104 of the Act Aggrieved thereby, the present appeal by the department. 3. The Revenue has filed the appeal on following grounds: Whether on the facts and in the circumstances of the case and in law the Hon‟ble ITAT erred in concluding that the benefits of Section 104 of the Act in respect of Unit II and Unit III are allowable by treating such units as distinct undertaking by ignoring the fact that assessee in has application to the STPI Authorities has stated that these units are expansion and not distinct undertakings? Whether on the facts and in the circumstances and in law, the perversity has crept into the order of the Hon'ble ITAT by ignoring and not appreciating the evidence in the form of assessee‟s own declaration and admission in application to STPI to the effect that works under reference constituted expansion of existing units and not a new and distinct undertaking or unit? Mr. Pinto, the learned counsel for the appellant, strenuously contends that the 4. assessee itself had represented vide its letter to the STPI that Unit II and Unit III are in the nature of expansion of business. As such the assessee cannot now turn around and contend otherwise. According to the learned counsel, even permission was granted by the STPI presumably on the ground that Unit II and Unit III are expansion units of the assessee. This fact has been considered by the Assessing Officer and the Commissioner (Appeals) However, the Tribunal without considering the finding of the Commissioner (Appeals) has set aside the said finding. The learned counsel relied on the judgment of the Delhi High Court in the case of HCL Technologies vs. Assistant Commissioner of Income Tax decided on 15th April 2015. According to the learned counsel, the said judgment would squarely apply in the present case and even the judgment of the Apex Court in Textile Machinery Corporation Ltd vs. CIT reported in 107 ITR 195 was referred thereto. He further submits that there was no independent registration of Unit II and Unit III with STPI which would demonstrate that it was not independent new undertaking. This fact has been lost sight of by the Tribunal if the said business

9 ITA No. 286/Mum/2021 & 287/Mum/2021 M/s. Siemens Technology & Services Pvt Ltd.,

was not merely an expansion but a new undertaking then certainly a fresh permission would have been required. The same is not forthcoming In view of that, it was not appropriate for the Tribunal to reverse finding of fact arrived at by the Commissioner (Appeals) and the Assessing Officer The learned counsel submits that the Tribunal has failed to consider provision of Section 1042) in its correct perspective and thereby has arrived at erroneous conclusion. According to the learned counsel, the provisions of Section 101(2) would apply 5. only if the undertaking is not formed by splitting up or reconstruction of the business already in existence. In the present matter, as it was not a new undertaking the assessee would not be entitled for the benefit of sub-section (2) of Section 104 of the Act. The learned counsel for the respondent supports the order and submits that the 6. Commissioner (Appeals) had called for the remand report from the Assessing Officer. The said remand report clearly shows that Unit II and Unit III of the assessee were independent and a new business According to the learned counsel various factors on record could clearly demonstrate the independent nature of business of Unit II and Unit III The same has been spelt out by the Tribunal in its judgment. The learned counsel, to substantiate his contention, relies on the judgment of the Apex Court in case of Textile Machinery Corporation Ltd vs. CIT reported in 107 ITR 195. The learned counsel submits that the Tribunal has relied on the judgment in Patni Computer Systems Ltd vs Deputy Commissioner of Income Tan, Circle 4. In the said case also permission was granted for expansion of the business and the same was held to be an independent business The said finding is upheld by this court in appeal filed by the Revenue against the judgment of the Tribunal in Patni Compuler Systems Ltd vs Deputy Commissioner of Income Tax, Circle 4 The learned counsel also relies on the judgment of this court in the case of The Commissioner of Income Tax-IV vs Symantee Software India (P) Ltd bearing Income Tax Appeal No 1534 of the 2012, decided on 12 December 2014. 7. The learned counsel submits that provisions of Section 10A will have to be liberally construed with regard to the object in view. The benefit is to be given to the now undertaking by way of incentive under Section 104 of the Act. The restriction imposed therein will have to be liberally construed. The learned counsel relies on the judgment of Bharat General Insurance Commissioner of Income Tax reported in 188 ITR Vol 195 page 188. We have considered the submissions canvassed by the learned counsel for the 8. respective parties. 9 It is not a matter of debate that vide letter dated 19th July 2000 the assessee sought permission to start Unit II at Bangalore for carrying out business of processing insurance claims and vide letter dated 26th July 2000 the STPI authorities at Bangalore granted the said permission to start a BPO for claim processing On or about 12th September 2001, permission was granted to Unit III to do the business of international call center. It was observed by the Tribunal that on 28th October 2003, the assessee has taken a separate registration with STPI, Mumbai for BPO call processing activity at Bangalore for the purpose of back end data backup. 10. The Assessing Officer in his remand report has held that both Unit II and Unit III duly fulfill all the conditions laid down in Section 104(7) of the Act The remand report of the assessee spells out following facts:-

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Computer Systems Ltd referred to supra which has been upheld by this court In the said Judgment also, the Tribunal had held that permission was sought by Patni Computers Systems Lid for expansion and benefit under Section 104 was accorded. The said order is upheld by that court in appeal. In case of Textile Machinery Corporation Ltd referred to supra the 15. Apes Court was considering the provisions of Section 13(C) of the Act as a stood then, dealing with similar provisions The Apex Court in the said case observed that the true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine whether a given case comes under Section 15C or not. 16. Considering the aforesaid conspectus, the Tribunal hat not committed any error while passing the impugned order. The plausible finding of fact has been arrived at after appreciating the 17. documents on record and remand report of the Assessing Officer 18. In light of above, no substantial question of law arise. The appeal is dismissed No costs.” So far as working of deduction allowable under section 10 A of the IT Act is concerned. I'm not in agreement with the reasons given by the AO for estimation of gross profit at the rate of 19.15% of gross receipts and denying adjustments on account of depreciation as per IT Act, adjustments under section 43B and interest income as mentioned in paras 28 and 28.1 of the assessment order. The appellant has properly explained the discrepancies pointed out by the AO Therefore, no such adjustment is called for. Accordingly, the AO is directed to stick to the working as per the accounts maintained by the appellant. So far as issue of denial of deduction in respect of unbilled sales is concerned, I am in agreement with the submission of the appellant that for proper determination of profits, unbilled income is required to be taken into account. However, the subsection (3) to section 10 A requires that sale proceed this should be brought into India by the assessee in convertible foreign exchange within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf. Considering the facts, the AO is directed to allow deduction in respect of unbilled income to the extent the provisions of subsection (3) to section 10A are satisfied in respect of such income. Balance amount of disallowance is confirmed. Reliance in this regard is placed on the decision of honourable ITAT, Hyderabad in the case of DCIT Vs Sankhya Infotech Ltd [2011] 12 taxmann.com 169 (Hyderabad) So far as disallowance of deduction u/s 10 A of the IT Act in respect of unrealised export proceeds amounting to Rs.10,73,862 is concerned, the same is here by upheld. So far as disallowance of deduction u/s 10 A of the IT Act in respect of interest on employee loan is concerned, the issue has been decided against the appellant by the ITAT, Mumbai in the appellant's own case for AY 2003-04 in ITA No

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2563/Mum/2007 Respectfully following the same, the order of the AO on this issue is upheld. Accordingly, these grounds of appeal are partly allowed.” 4. During the course of appellate proceedings before us, the ld. D.R supported the order of A.O and referred para 4 & para 18 of the assessment order. On the other hand, the ld. Counsel referred various pages of the CIT(A) order and submitted that during the course of appellate proceedings before the ld. CIT(A) assesse has filed additional evidence on which the A.O had submitted the remand report. The ld. Counsel also submitted that A.O submitted second remand report vide which A.O has rejected the assessee’s claim for deduction u/s 10A without considering the detailed documentary evidences filed before the ld.CIT(A). Further, the ld. A.R submitted that assessee was having total 20 units out of which 12 units were STP units and 8 units were Non- STP (Domestic). Out of the 19 STP units the assessee had claimed deduction for 9 units except 1 unit all the other units were set up in the previous year. He also referred page 78-79 of the paper book, page 78 is the report in Form No. 56F given by the auditor after certifying the claim of deduction made u/s 10A of the Act. The ld. Counsel further submitted that assessee had not reduced the claim of depreciation which was wrongly mentioned in the assessment order. The ld. Counsel also submitted that all the units were independent separate units. He also referred the various pages of paper book showing the various detail submitted before the A.O pertaining to the claim of deduction u/s 10A made in respect of various units. He also mentioned that expenditure pertaining to different units were allocated on scientific basis. He also referred the analysis of expenditure pertaining to the different units placed in the paper book. 5. Heard both the sides and perused the material on record. Without reiterating the facts as elaborated above during the course of assessment the A.O observed that the assessee had made certain corrections to the depreciation worked out in the tax audit report to the extent of Rs.305,35,719/- and offered a higher amount of taxable profit and consequently claimed lower benefit u/s 10A. Thereafter the A.O formed opinion that the units in respect of which deduction u/s 10A claimed were not independent units. No independent accounts of units were maintained. There was complete overlapping of work and use of resources amongst units through leased lines. The tax audit report and audit report u/s 10A was not correct or assessee was claiming expenses /depreciation of 10A units in non 10A units. Several non 10A units activities were being carrying on from10A units. The A.O also stated that assessee had failed to reconcile the service tax/VAT returns with Income tax returns. The A.O further stated that the claim of deduction u/s 10A will be allowed only with reference to first STP units at a particular station and the subsequent STP units at that station will be treated as reconstruction of business already in existence. 6. During the course of appellate proceedings before the ld.CIT(A) The remand report were called from the A.O in respect of various submission made by the assessee. However, the ld. CIT(A) reported in his finding that A.O has rejected the assessee’s claim for deduction u/s 10A in the remand report without considering the detailed documentary evidences filed by the assessee.

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During the course of assessment the assessee had categorically explained with supporting document that each of the units were located physically at separate registered premises. Each of the units was set up with the approvals from the STPI authorities demonstrated from the copies of STPI approvals placed in the paper book. The assessee also explained that there was no requirement u/s 10A of the Act to maintain separate books of accounts as evident from the CBDT Circular 1/2013 dated 17.01.2013 wherein the board has clarified that there is no requirement to maintain separate books of accounts. The assessee has also explained that no change was made in the amount of depreciation claimed during the course of assessment proceedings. The assessee has clarified that depreciation was inadvertently booked higher for non 10A units while finalizing the tax audit report and same was rectified in the return of income itself and not during the course of assessment as incorrectly observed by the A.O. The assessee had also given detail of unit wise profit and loss account along with tax audit report. The assessee had also explained that the service tax authorities had granted registration to the assessee in respect of each units, therefore, the service tax returns were filed by the assessee city wise and not unit wise. It was also explained with relevant detail that each unit claiming deduction u/s 10A was having a separate line of business, separate set of employees and nature of work done in each units was different. Before the A.O the assessee has also explained with relevant detail that common expenditure in the form of corporate expenses have been apportioned in the ratio of turnover of respective units and indirect expenses have been apportioned to the respective units on the basis of total man-months for the year of the respective units. During the course of assessment the assessee had categorically explained that it had total 19 units out of which 9 units were eligible for claiming deduction u/s 10A, 3 units were expired unit u/s 10A and the other 7 units were non 10A units (DTA units) for which no deduction was claimed. During the course of assessment the A.O count not controvert the relevant material furnished by the assessee in support of its claim of deduction u/s 10A and A.O also could not establish that units in respect of which deduction were claimed u/s 10A were not fulfilling any condition mentioned in sub- section (2) of Sec. 10A of the Act. In the light of the above facts and finding of ld. CIT(A) elaborated supra, we don’t find any infirmity in the decision of ld. CIT(A), therefore, this ground of appeal of revenue has dismissed.”

3.1. Respectfully following the same, the grounds raised by the Revenue are dismissed.

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Order pronounced in open Court on 02/11/2022.

Sd/- Sd/- (PAVAN KUMAR GADALE) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 02/11/2022 KARUNA, sr.ps

Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. 6. //True Copy//

BY ORDER,

(Sr. Private Secretary / Asstt. Registrar) ITAT, Mumbai