DCIT 4(3)(1), MUMBAI vs. THE RIALTO EXIM P. LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D”, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No.1444/Mum/2016 (A.Y. 2011-12) ITA No.6478/Mum/2016 (A.Y. 2013-14) DCIT 4(3)(1), Room No. 649, 6th Floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. ...... Appellant Vs. M/s The Rialto Exim Pvt. Ltd. 907, Jewel World, Kalbadevi Road, Mumbai-400002 PAN: AAECR8915L ..... Respondent

Appellant by : Sh. Dharmvir Yadav, CIT-DR Respondent by : None Date of hearing : 20/06/2022 Date of pronouncement : 16/09/2022 ORDER PER GAGAN GOYAL, A.M: These two appeals by the Revenue are directed against the order of Ld. Commissioner of Income Tax (Appeals)-9, Mumbai [hereinafter referred to as the [‘Ld. CIT(A)’] vide orders dated 03.12.2015 & 05.08.2016 for the Assessment Years (AY) 2011-12 & 2013-14 respectively. Firstly, we are taking ITA No. 1444/Mum/2016 for A.Y. 2011-12 as lead case. The Revenue has raised the

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common grounds of appeal in both the AYs except variation of amounts in figure which are as under: “1. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in directing the AO to allow the claim of deduction claimed by the assessee of Rs. 7,22,39,340/- u/s 10AA in respect of profits arising out of trading activities, whereas the conditions laid down by this section have not been satisfied. 2. Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” 2. Brief facts of the case are that the assessee is a Private Ltd. Company, filed its return of income on 30.09.2011 declaring total income at Rs. Nil by claiming deduction under section 10AA of the Income Tax Act, 1961 (for short ‘the Act’) amounting to Rs. 7,22,39,340/-. Assessee’s case was selected for scrutiny under section 143(2) of the Act. The assessee company was incorporated on 11th August, 2010. The 3. assessee company is engaged in the manufacturing activity in SEZ, Sachin, Surat. The company buys/import gold bullion in SEZ unit and export the jewellery manufactured. The company also traded in diamond during the previous year. The company was formed to take over the whole running business of the partnership firm namely “M/s Rialto Exim Pvt. Ltd.”. 4. During the assessment proceeding, a show-cause was issued in respect of rejection of claim of deduction under section 10AA of the Act. The total turnover for the year under consideration has been shown at Rs. 226.42 Cr. and returned income at Rs. 7,22,39,340/-. (Before claiming, 100% exemption u/s 10AA). The entire NP claimed to be exempted under section 10AA of the Act.

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 As per sub-section 4(iii) of section 10AA an assessee should not formed by transfer to a new business, of machinery or plant previously used for any purpose whereas as per Point No. III.B(3) of the Memorandum of Articles of Association, the company has been formed to take or otherwise acquire, hold shares, undertake and carry on the whole or any part of the business property and liabilities of the partnership firm. Apart from this, during the year under consideration the assessee company purchased office premises at Rs.60.65,928/- and computer at Rs.32.375/- which have been utilized for the registered office in Mumbai. Therefore, it is clear fact that the assessee company has brought in the assets which are previously used in the partnership firm. Hence, the assessee company failed to comply with the first primary conditions as per sub-section 4(1) of section 10AA of the Act. 7. A perusal of the assessment order shows that the AO has rejected the claim of deduction u/s 10AA of I.T. Act, 1961 claimed by the assessee for 3 reasons: i. Trading of polished diamond in respect to income derived from SEZ unit in Sachin, Surat; ii. The assessee is formed by splitting up, or reconstruction, of a business already in existence & iii. The assessee is formed by transfer to a new business, of machinery or plant previously used for any purpose. In other words, according to the AO, condition mentioned under sub-section 4 of Section 10AA, has not been fulfilled by the assessee-company.

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i Whether income from trading activity in SEZ –Zone tantamount to service for the purposes of sec10AA. In response to (i) above we are reproducing relevant instructions issued by department of Commerce and Industry, Govt of India and relevant provisions of SEZ Act, 2005. During the year under consideration, assessee has been involved in the trading activity of Diamonds through the SEZ Unit in Sachin, Surat. There are number of transactions in trading during the year under consideration. The chart of the same is attached herewith with paper book. We observed that assessee have been granted permission by the Development commissioner SEZ, to carry on business of manufacturing as well as trading in their SEZ unit (Refer Paper Book). We hereby found the letter issued by the Development Commissioner in respect of the overriding effect.. We also found herewith a copy of the letter of permission issued by the Development Commissioner regarding the effect that if the import is for the purpose of export then section 10AA benefit is available to the SEZ unit in respect of the trading activities. Assessee has specifically detailed all the trading transactions stating therein that all the imports and exports have been transacted through the SEZ Unit at Sachin thus making it abundantly clear that the import of diamond was for the purpose of export only.

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The firm is authorized to carry on the activities which are permitted by the letter of approval issued by the Development Commissioner. Thus assessee was granted a letter of approval (LOA) by the Development Commissioner, Surat w.r.t. section 15(9) of the SEZ Act, 2005 to set up a unit for undertaking the authorized operations of manufacturing and trading of the Diamonds and Jewellery as mentioned in the LOA which is not in dispute. As per the provisions of section 10AA of the I.T. Act, 1961 a unit established in SEZ is entitled to get an exemption of its income from manufacturing and services i.e. trading activities. The Section 10AA of I. T. Act, 1961 was inserted in Income Tax Act, 1961 by second schedule of Special Economic Zones Act, 2005 w.e.f. 10-02- 2006. For sake of convenience and ready reference relevant portion of section 10AA is reproduced below: 10AA. (1) Subject to the provisions of this section, in computing the total income of an assessee, being an entrepreneur as referred to in clause (f) of section 2 of the Special Economic Zones Act, 2005 from his Unit, who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, a deduction of i). Hundred percent of profits and gains derived from the from the export of such articles or things or from services for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services as the case may be, and fifty per cent of such profits and gains for further five assessment years and thereafter:

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The word manufacture have been defined in sub-clause (r) of section 2 of SEZ Act, 2005. (r) "Manufacture" means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine a new product having a distinctive name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, reengineering, and includes agricultural, aquaculture, animal husbandry, floriculture, horticulture, poultry, sericulture, viticulture and mining. The word services have been defined in sub clause (z) of section 2 of SEZ Act, 2005. (z) “Services “means such tradable services which i. are covered under the General Agreement on Trade in Services annexed as IB to the Agreement the 15th day establishing of April,1994.the World Trade Organisation concluded at Marrakesh. ii. May earn be foreign prescribed exchange; by the Central Government for the purpose of this Act: and The Central Government has defined the services in the rule 76 of the SEZ Rules, 2006 which inter alia includes trading. The extract of the rule 76 is reproduced as under: "Trading, warehousing, research and development services, computer software services, including information enabled services such as back-office operations, call centres, content development or animation, data processing, engineering and design, graphic information system services, human resources services, insurance claim processing, legal data bases, medical transcription, payroll, remote maintenance, revenue accounting, support centres and web-site services, off-

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shore banking services, professional services (excluding legal services and accounting) rental/leasing services without operators, other business services, courier services, audio-visual services, construction and related services, distribution services (excluding retail services), educational services, environmental services, financial services, hospital services, other human health services, tourism and travel related services, recreational, cultural and sporting services, entertainment services, transport services, services auxiliary to all modes of transport, pipelines transport. Explanation: - The expression "Trading" for the purposes of the second schedule of the Act shall mean import for the purposes of export." Thus, trading activity has been included in the definition of "service" under Rule 76 of the SEZ Rules, 2006. Explanation to Rule76 states that “trading”, for the purposes of the Second Schedule of the Act, shall mean import for the purposes of re-export. *Under Income Tax Act: The term "trading" has not been defined. According to Explanation under section 10AA of the Income-tax Act, "export in relation to Special Economic Zone" means taking goods or providing services out of India from a Special Economic Zone by land, sea, air, or by any other mode, whether physical or otherwise. which The Ministry inter alia of introduced Commerce, an Govt. explanation of India which has issued defined the notification word trading dated "Trading" 10-08-2006for the purpose of the second schedule of the Act, shall mean import for the purpose of re export.

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Similarly the Ministry of Commerce, Govt. of India has also clarified vide instruction no.4/2006 that the trading activities will be allowed to carry out all forms of trading activity but the benefits u/s 10AA will be available to trading in the nature of re-export of imported goods. A copy of said instruction enclosed (P.B. No.220). The said instruction is also made available on the web site of Govt. of India www.sezindia.gov.in Assessee thus fulfils all the primary conditions of section 10AA for getting the exemption i.e. a. Assessee is an entrepreneur (i.e. person who has granted approval by Development Commissioner) as per sec. 2(i) of SEZ Act, 2005. b. The unit has started to provide services (trading i.e. import for the purpose of re-export only) and manufacturing activity well within the time.. c. Assessee has exported goods or services by filing bills of entry/shipping bill in physical mode. Assessee has claimed profits and gains of manufactured goods as well as of trading of goods as exempt w/s 10AA. Thus total net profit of SEZ units does not include only profit of trading but that of manufacturing also. The Ld. A.O. held that assessee company is not providing any service in respect to the goods it exported from its Surat SEZ unit but merely purchasing and selling goods without applying any skills on it or improving its value quotient and transactions are devoid of basic fundaments of services and so cannot be termed as service also and so cannot be termed service also and, therefore, it is not entitled to deduction u/s 10AA of I. T. Act, 1961 as claimed by it.

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In this connection it is observed that: The scope of Section 10AA is mainly focused on encouraging the trading activity at an international level from newly established units operating in an SEZ. The intention behind the introduction of Sec. 10AA is to encourage international trade and in the process enable more and more organizations to participate in global trade. The Section was introduced not as an amendment but as a modification to Income Tax Act, 1961 by the SEZ Act, 2005.Reference to the introduction of section in the I.T.Act, 1961can be found in the Second Schedule to the SEZ Act, 2005. Instructions given by the Ministry of Commerce and Industry under the SEZ Rules, 2006 *As per Instruction No. 4/2006, in respect of SEZ Rules (Issued by Department of Commerce) dated 24.5.2006. (F. No. F.5/1/2006-EPZ) which states as follows: "Subject: Modification in Instruction No. 1/2006 dated 24th March, 2006 of the Department of Commerce regarding setting up of trading units in the Special Economic Zones - Reg. This Department has been receiving representations on difficulties faced by the existing SEZ units holding approval to do trading, that their exports are adversely affected and also that several of their orders are held up due to the restriction on trading on account of the above instruction. Taking cognizance of these representations, in partial modification of the above-referred Instruction dated 24th March, 2006, it has been decided that while units in the Special Economic Zones who hold approval to do trading activities will be allowed to carry out all forms of trading activity, the benefits under Section 10AA will exclude trading

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other than trading in the nature of re-export of imported goods. Appropriate amendments in this regard are being issued. In the meantime, sourcing from domestic area may be permitted by units in the SEZs which are allowed to do trading, subject to this circular being cited and on production of an undertaking by the concerned unit that no Income tax benefits will be availed by the unit for trading, except in the nature of re-export of imported goods. Development Commissioners are requested to note the above and take appropriate action." The instruction specifies that the activity of trading in the nature of re-export of imported goods is eligible for benefit under section 10AA. The assessee company on the activity of trading in the nature of re-export of imported goods claims benefit under Section 10AA justifying its classification under service (referred to as "provide any service" under the said section). As the Income Tax Act does not define the term "service", the assessee company has to take reference to the definition of service referred to in the SEZ Act, 2005 (given that the Section 10AA was introduced by SEZ Act, 2005 and referred to in the Second Schedule to the said Act) and further the SEZ Act, 2005 has overriding effect on all other enactments by virtue of section 51 of SEZ Act, 2005 which reads as under: - The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act."

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The Ld. A.O. has taken a stand on the issue which is not a logical interpretation, instead every effort has been made by him to overlook and misinterpret the meaning and logic behind the introduction of Section 10AA. The term "service" has been examined by Ld. A.O. on the basis whether mere purchases and sale with no value addition as done by the assessee can be termed services. However there is no reason to deviate far from the immediately available definition of "Services" under the SEZ Act. (given that the Income Tax Act, 1961 does not define the term "(services") and, therefore in accordance with Section 51 of SEZ Act, 2005 the definition given in SEZ Act, 2005 will apply more so when explanation to rule 76 clearly provides Trading for the purposes of the second schedule of the Act, (by which Section 10AA inserted in I. T. Act, 1961) shall mean import for the purposes of re-export. The Ld. A.O. in assessment order discussed irrelevant references to case laws and decisions that bear to relevance to case specifically on the fact that unit of assessee is established in the SEZ in accordance with section 10AA of I.T. Act, 1961 and SEZ Act, 2005. Thus the discussions references and decisions used in assessment order are not at all applicable in the case. It will be thus clear that trading activity in the nature of re-export of imported goods is falling under the head service u/s 10AA of I. T. Act, 1961 r/w section 2(z) of SEZ Act, 2005 r/w rule 76 of SEZ Rules, 2006 and above referred notification. Assessee also submitted herewith clarification issued by Development Commission SEZ, Sachin, Surat issued to the assessee company which is self explanatory and states that assessee company is entitled to the benefit of section 10AA of I. T. Act, 1961 in respect to import of goods which are re-exported to buyers in other countries in view of provisions of section 2(z) of SEZ

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Act, 2005 r/w Section 27 and section 51 of SEZ Act, 2005 r/w rule 76 of SEZ Rules. 2006. In view of the above it is evident that not only profits and gains of manufactured goods but also trading of goods are allowed for getting the exemption us 10AA of the I.T. Act, 1961 if imported goods are re-exported by a unit duly approved by development commissioner of concerned SEZ. The assessee company's entire purchases are import in SEZ unit. The entire goods are exported to foreign country. Further the assessee company also fulfils all other terms & conditions laid down in section 10AA of the I.T. Act, 1961 and as such deduction is claimed as per provisions of law and allowable as such. In view of the above under the SEZ Act 2005 trading is included in the services provided for export of imported goods. As per sec 51 of the SEZ Act 2005 notwithstanding anything inconsistent therewith contained in any law for the time being in force, the provisions of SEZ Act 2005 will prevail. To substantiate our view we have relied on ITAT decision in the case of M/s Goenka Diamond and Jewellers Ltd Vs DCIT, ITA No 509/JP/2011, M/s Geetanjali Exports Co Ltd Vs ACIT, ITA No. 6947,6948,6781,6783,6949,6950,6785 and 6787/Mum/2011 In view of the above we are of the considered view that trading activity carried out by the assessee is entitled for deduction benefit u/s 10AA. ii. The assessee is formed by splitting up, or reconstruction, of a business already in existence &

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iii. The assessee is formed by transfer to a new business, of machinery or plant previously used for any purpose. For above two objections of the AO, our observation again based on facts of the case and relevant judicial precedents applicable to the assessee. In this regard, we are of the view that where as running business is transferred lock, stock and barrel by one assessee to another assessee the principle of reconstruction, spitting up and transfer of plant and machinery cannot be applied, because benefit of section 10AA of the Act attaches to the undertaking and not to the assessee. Here it is not material who owns the undertaking but whether the undertaking is entitled to the benefit under section 10AA or not. In this regard, we further rely on Departmental instruction having No. 17/2013 dated 19.11.2014 and 3/2014 dated 14.03.2014. We further rely on following judicial pronouncements by various Benches of ITAT and Hon’ble High Courts including Jurisdictional High Court also as under: (iv) Hon.ble Bombay High Court in the case of CTT v. M/s. Sonata Software Limited "Held that The Tribunal in the present case has come to the conclusion that where a running business is transferred lock, stock and barrel by one assessee to another assessee the principle of reconstruction, splitting up and transfer of plant and machinery cannot be applied. According to the Tribunal the benefit of Section 10A attaches to the undertaking and not to the assessee which owns the undertaking. The benefit of Section 10A was held to have attached itself to the STP unit of the software division which was owned by IOCI till 19 October 1994 and it was owned by the assessee subsequent to that date. What is material, according to the Tribunal, is not who owns the undertaking, but whether the undertaking is entitled to the benefit available under Section 10A. As regards the issue of transfer by IOCL to the assessee, the Tribunal noted that Section 10A (9) was substituted by the Finance Act 2000 with effect from 1 April 2002. Section 10A(9) provided that where during any previous year the ownership or beneficial interest in an

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undertaking of the business is ital-311-2004 transferred by any means, the deduction under sub-section (1) shall not be allowed to the assessee for the Assessment Year relevant to such previous year and the subsequent years. The Tribunal noted that if a transfer between IOCL and the assessee were to be effected after 1 April 2001 that would result in the undertaking being disentitled to the benefit under Section 10A. This was a pointer to the fact that prior to the substitution a transfer of ownership or beneficial interest in the undertaking would not disentitle an assessee to the benefit of Section 10A. (As a matter of fact it may also be noted that the provisions of Section 10A (9) were omitted by the Finance Act 2003 with effect from 1 April 2004). The judgment of the Division Bench of this Court in Gaekwar Foam explains that the concept of a reconstruction of a business implies that the original business is not to cease functioning and its identity is not lost. Reconstruction is of a business already in existence and there must be at continuation of the activities and business of the same industrial undertaking. Where the ownership of a business or undertaking changes hands that would not be regarded as reconstruction. This judgment has specifically been approved by the Supreme Court in itxal-311-2004 Textile Machinery Corporation (Supra). As regards the splitting up of a business, the relevant test is whether an undertaking is formed by splitting up of a business already in existence. Unless the formation of the undertaking takes place by the splitting up of a business already in existence, the negative prohibition would not be attracted. In the present case, the entire business of the software undertaking was transferred to the Assessee. The undertaking of the Assessee was not formed by the splitting up of the business. For the aforesaid reasons, the first question of law would have to be answered in the affirmative in favour of the assessee and against the Revenue." (v) Honourable Karnataka High Court in the case of CIT Vs. M/s. Foresee Information Systems (P) Ltd. "Held that we have carefully considered the arguments addressed by the learned counsel for the parties and perused the orders impugned in the appeals. The records clearly disclose that the respondent- assessee is a partnership Firm engaged in the business of exporting software. It was subsequently converted into a Company and got changed its name as M/s. Foresee Information Systems. All the partners in the Firm became the shareholders of the company and all the assets and liabilities of the Firm were transferred to the company. The assessee- Company made an application before the STPI authorities for approval to set up a STP unit. The STPI authorities accorded approval for setting up a STP unit. The license was granted by the Customs Authorities in January 2002. Prior to the

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setting up of STP Unit, the assessee was claiming deduction under Section 80HHE. The assessee is dealing with the US based company M/s. Effone Software Inc., and all exports have been made to the said company only. He filed returns of income claiming deduction under Section 10A of the Act. The Assessing Authority, after scrutinizing the returns filed by the assessee held that the assessee is not entitled for deduction under Section 10A and rejected the same for the reasons referred to in the earlier part of the order. On an appeal filed by the assessee, the First Appellate Authority considered the matter afresh and held that the assessee is entitled for the benefit under Section 10A. The said order was confirmed by the Tribunal. The assessee is a 100% export oriented unit, enjoying deduction under Section 80HHE of the Act. In the CBDT Circular No.1/2005 dated 6-1-2005, it has been stated that existing Domestic Tariff Area (for short 'DTA) Units which were approved as 100% EOU units by the Board shall be eligible for deduction under Section 10B of the Act. Further, the scheme of Biotechnology Park framed by the Ministry of Government of India, clause 6.36.1 provides for conversion. Clauses 6.36.1 and 6.36.2 read thus: "6.36.1: Existing DTA units may also apply for conversion into EOU/EHTP/STP/BTP unit, but no concession in duties and taxes would be available under scheme for the plant, machinery and equipment already installed. On conversion, they would get Income Tax concessions but limited to period of 10 years from original commencement of manufacture or that prescribed under Section 10 of Income Tax Act whichever is earlier. For this purpose, DTA unit may apply to the DC/Designated Officer concerned in same manner as applicable to new units. In case there is an outstanding export commitment under EPCG Scheme/Advance Authorization Scheme, it will follow the procedure laid down in the Appendix. 6.36.2: Existing EHTP/STP/BTP units may also apply for conversion/merger to EOU unit and vice-versa. In such cases, units will continue to avail permissible exemption in duties and taxes as applicable under relevant scheme. EHTP/STP/BTP units desiring conversion as an EOU may apply to DC concerned through Officer designated by DoIT/DOBT in same manner as applicable to new units. Likewise, EOU desiring conversion into EHTP/STP/BTP may apply to officer designated by DoIT / DOBT through DC concerned." Reading of the above clauses makes it very clear that benefit under Section 10A can be extended even to the existing units, if they have fulfilled the condition under Sections 10A(2)(a)(i) and 10A(2)(a)(ii) of the Act and as contended by the assessee, the requirement of setting up of a new STP unit does not arise. The

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Bombay High Court in TEXSPIN ENGINEERING AND MANUFACTURING WORKS (supra) has clearly held that the conversion of a Firm into a Company is not a case of distribution of assets or dissolution of the Firm. In the present case also there is no transfer of business as contemplated under Section 4501) of the Act and only the partnership firm was converted into a company and all the partners of the firm have become the shareholders of the company. Further all the assets and liabilities were transferred to the Company. None of the outsiders were inducted as shareholders. In view of the STPI scheme framed by the Government of India, the existing DTA units can also be converted into STP units and enjoy the deduction under Section 10A of the Act. The records further disclose that the assessee has not violated any of the conditions prescribed under Section 10A of the Act. Further, Division Bench of this Court also had an occasion to examine the Circular No.1/2005 issued by the CBDT in CIT v/s EXPERT OUTSOURCES PRIVATE LIMITED(supra), wherein the Division Bench of this Court has held that though the circular is in the context of Section 10B, the ratio of the circular equally applies to Section 10A also. The benefit under Section 10A would also be available even when an existing unit gets converted into STP unit. Hence, it is not open to the Assessing Officer to contend that no new undertaking came into being after approval of STPI. In a judgment reported in CIT v/s MAXIM INDIA (supra) in paragraph 5, the Division Bench of this Court has held under: "The material set out amply proves that it is not a case of reconstruction as mistook by the Assessing Authority. The facts disclosed that the assessee commenced production from 01-0-2002 and the assessee was entitled to the benefit under Section 80HHE. However after approval was granted by the Director of STPI on 31-12-2002 the assessee was entitled to the benefit of Section 10A of the Act. This is supported by the circular No.1/05 dated 06-10-2005 issued by the CBDT. Further, a similar view has been taken in CIT v/s EXPERT OUTSOURCES (supra). Hence, the law declared by the Division Bench of this Court referred to above is binding on the Assessing Officer. The First Appellate Authority as well as the Tribunal after considering the matter in detail and taking into consideration the Board Circular N-1/2005 issued by the CBDT and the Import and Export Policy clearly held that the assessee is entitled for deduction under Section 10 of the Act. The respondent-Company fulfills all the conditions enumerated under Section 10A of the Act and it is not formed by splitting up, or reconstruction of the business already in existence. It is also not formed by transformation of new business of plant or machinery previously used for any purpose. Both the Assessing Authority

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as well as the Tribunal have concurrently held that the respondent-assessee is entitled for deduction under Section 10A of the Act. We find there is no infirmity or irregularity in the said finding. Hence, the substantial question of law framed in these appeals is answered against the revenue and in favour of the assessee. (v) Honourable Delhi High Court in the case of CIT Vs. Heartland Delhi Transcription Services Pvt. Ltd. Held that "For the purpose of the present statute, i.e., Income Tax Act, 1961 difference between an undertaking, and the owner thereof, i.e., the assessee is well I recognised and too apparent to be ignored and, therefore, when the Legislature in sub-section (1) and other sub-sections used the term "undertaking" as distinct from its owner/proprietor, the assessee, the effect thereof must be given full play. Way back in 1963, Circular F.No. 15/15/63- IT(A1) was issued with reference to Section 84 of the Art stating that the Board, i.e., the Central Board of Direct Taxes had agreed that benefit of the said Section attaches itself to the undertaking and not to the owner thereof. The successor would be entitled to benefit of the unexpired period of five years provided the undertaking was taken over as a running concern. More specific is the support and affirmation from the circular issued by the Board after amendment was brought about by Finance Act 2002 to Sections 10A and 108. The relevant portions of which read as under:-"Under the existing provisions of section 10A, the deduction is available for a maximum period of ten consecutive assessment years starting from the year of commencement of production. After the assessment year commencing on or after 1-4-2010, no deduction shall be available irrespective of the year of commencement of production. However, in respect of undertakings commencing operation in the notified Special Economic Zones (SEZ) on or after 1st April, 2002, the Finance Act, 2002 intends to provide a separate tax holiday for a total period of seven assessment years, comprising of a deduction of 100% of export profits for five years followed by deduction of 50% of export profits for subsequent two years. The proposal shall have the effect of extending the deduction under section 10A beyond the assessment year 2010-2011, in respect of undertakings operating from the notified Special Economic Zones (SEZs). 19.6 Sub-section (9) of Section 10A and sub-section (9) of section 10B provide that no deduction under those sections shall be available where during any previous year the ownership or the beneficial interest in the undertaking is transferred by any means.

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19.7 The above provision was introduced by the Finance Act. 2000 to prevent trading in incentives by such companies formed only for that purpose. However, the above provision was not intended to bring within its purview cases of genuine business reorganization while maintaining the major portion of ownership or beneficial interest with the same persons who were the owners of the business before such reorganization. 25. However, as noted above, in the very next year substantial changes were made by Finance Act 2003, sub-sections (9) and 9A of Section 10B were both deleted. Similar changes were also made in Section 10A of the Act.” “(1) Honourable Karnataka High Court in the case of CIT & Anr. V. Quest Informaties (P) Ltd. 2015 Taxpub (DT) 1598 (Karn-HC) 2015 372 ITR 526 (Karn) "Held that law laid down in the CIT V/S Wipro GE Medical system Ltd. (2015) 4 ITR- OL 288(Karn), CIT V. Maxim India Integrated Circuit Design (P) Ltd. (2011)202 Taxman 365 (karn) and CIT v. Expert Outsource(P) LTD (2013) 358 ITR 518(karn) squarely applied to the facts of the case. Therefore, both the lower authorities had rightly allowed the deduction u/s 10A in respect of STPI unit." Followed by CIT v. Wipro GE Medical System Ltd. (2015) 4 ITR-OL 288 (karn) and CIT v. Maxim India Integrated Circuit Design (P) Ltd. (2011) 202 ITR Taxman 365 (karn) and CIT v. Expert Outsource (p) Ltd.(2013) 358 ITR 518(karn). (ii) APS Technologies v. ITO 2015 Taxpub (DT) 631 (Pune B-Trib):2015 167 TTJ (Pune 'R'-Trib) 33 "Held that from the wording of clause (ii) of Sec.10A (2) with no stretch of imagination, it can be said that assessee firm was formed by the splitting of or reconstruction of a business already in existence. Nothing was there on record to suggest that said ERP business of the assessee firm was carried on by other entity including the partners in individual capacity and subsequently the business of the said entity was split or there was a reconstruction. On perusal of the assessment order, it was found that all these facts were put on record by the assessee in his Explanation 13/12/2012. Admittedly, the laptop and printer were newly purchased may be count of partner which were used for the business of the assessee firm. Nothing was there on record to support the case of the AO that those laptop and printer were used earlier for some other business by the partner. Therefore, the conclusion of the AO in respect of the alleged violation of clause (1) to see. 10A (2)

20 ITA No. 1444 & 6478/Mum/2016-M/s The Rialto Exim Pvt. Ltd.

was also erroneous. Thus, the assessee had not violated any of the conditions in sec. 10A (2) of clauses (ii) or (iii).” In view of above, ground raised by Revenue is not sustainable and order of Ld. CIT (A) is upheld. 9 In the result, Ground No.1 raised by the Revenue is dismissed. ITA No. 6478/Mum/2016 A.Y. 2013-14 by Revenue 10. The Revenue has raised the following grounds of appeal: i. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to allow the claim of deduction claimed by the assessee of Rs. 9,07,00,890/- u/s 10AA of the I.T. Act, 1961 in respect of profits arising out of trading activities, whereas the conditions laid down by this section have not been satisfied.” ii. “The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” 11. The grounds raised by the revenue has already been dealt with (supra) in ITA No. 1444/Mum/2016 (A.Y. 2011-12) in the light of above findings in the case of Revenue’s appeal, this appeal filed by the revenue became infructuous. 12. In the result, appeal filed by the Revenue is dismissed. Order pronounced in the open court on 16th day of September, 2022. Sd/- Sd/- (AMIT SHUKLA) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, िदनांक/Dated: 16/09/2022 SK, Sr.PS

21 ITA No. 1444 & 6478/Mum/2016-M/s The Rialto Exim Pvt. Ltd.

Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकर आयु�(अ)/ The CIT(A)- 4. आयकर आयु� CIT 5. िवभागीय �ितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, Mumbai 6. गाड� फाइल/Guard file. BY ORDER, //True Copy// (Dy. /Asstt. Registrar) ITAT, Mumbai