CGI INFORMATION SYSTEMS vs. DEPUTY COMMISSIONER OF

THE INCOME TAX OFFICER WARD-8(1)(2), MUMBAI (TRANSFERRED TO BANGALORE) THE ASSISTANT COMMISSIONER OF INCOME TAX WARD 8(1) [PRESENTLY DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 11(2)] BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE-560 095

COMMISSIONER OF INCOME TAX BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE-560 095 …RESPONDENTS

DEPUTY COMMISSIONER OF INCOME-TAX - CIRCLE 2(1)(1) (FORMERLY DCIT-CIRCLE 11(2) BENGALURU BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE-560 095

COMMISSIONER OF INCOME TAX BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE-560 095 …RESPONDENTS

Brief facts of the case are, assessee is a 100% EOU2 engaged in the business of Software development. Initially, it had set up an Unit in Mumbai during A.Y. 1991-92. Thereafter, it set up an unit in Trivandrum during A.Y. 1993-94 and a new Software Technology Park in Bengaluru in A.Y. 1996-97.

For A.Y. 1996-97, though assessee was eligible to claim exemption under Section 10A of the Income Tax Act, 1961 ('IT Act' for short), it claimed deduction under Section 80HHE of the IT Act and the same was allowed. For A.Y. 1997-98, assessee claimed deduction under Section 10A of the IT Act for the first time and the same was allowed. However, for A.Y. 1998-99, assessee's claim for deduction under Section 10A of the IT Act was disallowed. For A.Y. 1999-2000, 2000-2001 deduction claimed under Section 10A was allowed. Thereafter from A.Y.2001-02, the Assessing Officer has disallowed the deduction under Section 10A on the ground that the Mumbai Unit was started in A.Y.1991-92 and therefore, A.Y.2000-2001 was the last assessment year to claim exemption under Section 10A of the IT Act.

Shri. T. Suryanarayana, learned Senior Advocate for the assessee submitted that the above finding of the AO is erroneous and perverse because, AO has misconstrued that the shifting of machinery from Mumbai to Bengaluru as

Shri. Sanmathi contended that denial of benefit under Section 10A of the IT Act for A.Y. 1998-99 by the CIT(A) has attained finality as the assessee did not challenge that finding. In reply Shri. Suryanarayana contended that the assessee had got substantial relief under Section 80HHE of the IT Act. Therefore, assessee did not choose to challenge it. He argued that notwithstanding disallowance of deduction under Section 10A of the IT Act for A.Y.1998-949, the AO had granted the relief under Section 80HHE for the subsequent two years.

Placing reliance on Saurashtra Cement & Chemical Industries Ltd., Vs. CIT4, Direct Information (P.) Ltd. Vs.Income-tax Officer5 and Commissioner of Income- tax-2 Vs. Western Outdoor Interactive (P.) Ltd.6, Shri. Suryanarayana urged that, the AO having granted relief in the first year (A.Y.1997-98) after formation of the STP in Bangalore, could not have rejected the same on any other grounds more particularly, that assessee was not given the benefit for the AY.1998-99.

Shri. Sanmathi's only argument is, assessee was not given the benefit under Section 10A of the IT Act for A.Y.1998-99 and the same was not challenged by the assessee; and the Assessment Order for the year 1998-99 has attained finality. He submitted that the CIT(A) and the ITAT have rightly noticed that assessee was denied the benefit for the said year and accordingly not granted relief for A.Y. 2001-02 and subsequent years. Insofar as the

We have carefully considered rival contentions and perused the records.

The first question is, whether ITAT's finding that condition stipulated in Section 10A(2)(iii) of the IT Act had not been satisfied in the first year of commencement of manufacture, is correct?

The ITAT in para 8 of its order has recorded that assessee was disallowed the benefit under Section 10A of the IT Act for A.Y.1998-99. For the said reason among others, ITAT has dismissed the appeal concurring with the finding of the CIT(A).

In the assessment order for the A.Y. 1997-98, the AO has recorded thus: "3. As in the earlier year, the assessee is engaged in the business of export out of India of computer software as also providing technical services out of India in connection with development or production of computer software. The assessee was having its units at SEEPZ, Mumbai which commenced operation during the A.Y.1991-92 and another unit at Trivendrum which commenced operations during the A.Y.1993-94. The assessee consolidated its operations at "Seepz" and "Trivandrum" unit to a new private Software Technology Park (STP) at Bangalore in the A.Y.1996-97 and accordingly, the assessee carried out all its activities of software development from STP, Bangalore during the P.Y. relevant to the A.Y. 1997-98. The assessee has claimed exemption u/s.10A for the A.Y.1997-98 for its consolidated STP unit at Bangalore."

Shri. Sanmathi's objection is that the AO has considered it as a consolidated operation. In our view, the AO has indeed noticed that the assessee was having its unit at Mumbai and accordingly granted benefit under Section 10A of the Act. The CIT(A) has recorded his finding at para 9 that the view taken by the AO that the 10 years period had expired from 1991-92 was incorrect. This finding has attained finality. We are satisfied that the contention urged by Shri. Suryanarayana that though benefit under Section

For subsequent years namely 1999-2000, 2000- 2001 the assessee has been given relief under Section 10A of IT Act. In Sourashtra Cement, Gujarat High Court has held as follows: "7. ……………The neat question to which the Tribunal addressed itself, and in our opinion rightly, was whether the ITO was justified in refusing to continue the relief of tax holidy granted to the assessee-company for the assessment year 1968-69 in the assessment year under reference, i.e., 1969-70 without disturbing the relief granted for the initial year. It should be stated that there is no provision in the scheme of Section 80J similar to one which we find in case of development rebate which could be withdrawn in subsequent years for breach of certain conditions. No doubt, the relief of tax holiday under section 80J can be withheld or discontinued provided the relief granted in the initial year of the assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year, the ITO cannot examine the question

In Direct Information Pvt. Ltd., the Bombay High Court has held as follows: "17. ………… Now, it is true that each Assessment Year constitutes a separate unit in itself and the principles of res judicata as such are inapplicable. Equally, though the principles of res judicata do not strictly apply, as in the case of different Assessment Years, there is some value to be placed on the need for uniformity even in tax adjudication…….."

A combined reading of these two authorities make it clear that there cannot be uncertainty in the assessments for different years. Assessee sought deduction under Section 10A of the IT Act for the first time in A.Y.1997-98 and the same has been allowed. Therefore, without disturbing the relief granted in that year, the AO could not have denied the benefit for subsequent years.

For 1998-99, the learned Senior Advocate has explained that assessee did not challenge the said order because assessee had got relief under Section 80HHE. For the subsequent two years, assessee has been given the

Hence, the following: ORDER