INCOME TAX OFFICER WARD-1(4), NAGPUR vs. M/S R.F.ARRAYS SYSTEMS PVT. LTD, NAGPUR

3 IN THE INCOME TAX APPELLATE TRIBUNAL Nagpur Bench; Nagpur Before Shri P K Bansal, Vice President and Shri Pawan Singh; Judicial Member ITA No.397/NAG/2014 (Assegsment Year: 2010-1 }) Income Tax Officer 1(41 M/s. RF. Atrays Systems P, Ltd. Roon No, 504, Sth Floor Module No_ 16 Infotech MECL Building Vs_ Tower , I,T. Park, Parsodi Seminary Hills Nagpur 440022 Nagpur 440006 PAN AACCR8956K Appellant Respondent Appellant by: Dr. Milind Bhusari & Mrs Thomas Respondent by: Shri Sagar N, Gempawar & Ms Veena Agrawal Date of Hearing: 22,11,2017 Date of Pronouncement: 24.11.2017 QRDER Pawan Singh, JM This appeal under Section 253 of the Income Tax Act by the Revenue is directed against the order of the CITIA--L, Nagpur dated 30.05.2014 for A.Y. 2010-11_ 2 Revenue hag raised the following graund of appeal; 0] On the facts and circumstances of the case an and in law, the Ld. CIT(A) erred in concluding that the assessee is eligible for u/ 5. 1OA without appreciating the fact that the exemption assessee has not set up its business in SEZ a5 mandated u/ $. 1OA(2lilfc} of the IT: Act; 1961 2 On the facts and circumstances of the case ant and in Iaw, the Ld CITIA} erred in holding that the provisions of 5eC u/S, 1OA(JiJc} were applicable and the assessee was entitled to the exemption U} 5. 1OA of the IT: Act; 1961 even though the unit was set up on or after Ist Day of Aprll,2001. ITA o. 397/uw 2014 Mf s RF, Arrugs Syste"ms P Lt 134 are that the assessee company {iled its 3 The brief lacts of the case Teturn of incOmc for the rclevant assessment year on 08.10.2010 declaring In the return of income the asgessee claimed total income of <22,14,405/ 1OA for {1,22,32,595/- The axsessmnent way deduction uunder Section under Section 143(3) on 25.03.2013. The A0 while passing the completed order disallowed deduction under Section 10A. On appeal assessmnent under Section 10A was allowed, Thus, before the CITIAJ the deduction has filed this appeal before aggrieved by the order of the CIT(A} Revenue 4S. 4 We have considered the rival submissions of the parties perused the material available on record: The learned DR. for Revenue supported the order of the AO He argued that the assessee is not entitled {or deduction 104 a5 the assessee ha8 not qualified the three conditions under Section Section 1OA(2)(il(c) to become eligible for deduction: 83 prescribed under has not sel up new unit for LLAT firther submitted that the asse85pe yning deduction under Section 1OA 3 the learned A.R: supported the order of the On the other hand, JN In of his contention the learned A.R. relied on the decision CIT(A): support the case of M/s. Infuspectrum India Pvt; Ltd_ l the Coordinate Bench in ACIT in ITA No. 82/Nag/2012 and the decision of the Nagpur Bench of YS_ Court in the cast of CIT vs_ M}s Inlospectrum the Hon"ble Bomnl" bay High 110 of 2013 dated 11.07.2017 (wherein the India Pvt- Ltd. in ITA No appeal of the Revenue was dismissed): the rival submibsions of the parties and have 6 We have considered gone through the Orders of the authorities below. During the assessment a8sess22 to explain the eligibility of proceedings the AQ asked the under Section IOA as the unit of the assessee i8 not in SEZ The exemption assessee furnished his reply, which is extracted hereunder: "On comparing the proposal for Amendment %f Section !OA and Section !OB in Finance Bill, 2000, with that to actual wording of Section, it is noted that - ITA #0 397/Nag/JOT4 M/ s R.F Arrtyx Systers P Lt 135 The wordling "hut befare H' day of April 200] n5 proposed in the bill cre missing {13 actual cl&use 20AfJ)tif) (S well Q3' 10A{2,f1)66j. The emphasis of clouse ? is < fatfillmuent af all conditians mentioned In sub cleue {i), {W6} artc} fiiy It does #or #Ieste Ihat alI the conditions of sub- claise (0} (b) & (c} uf sub-clause (i) huve 1o be fulfilled Similer is the cose with section !0B, 2 The perusal %f Finance Bill ZOUU and Finance Aci 20OO would make it evident that benefit ys. !0A t0 & unit Set up tnder STP Scheme WGS Flof !0 be restricted after 3 }.03.2000 The ahove submission i3 further clear from Ile Circular explaining the provision of Income Tax Act 2000. {m fact scopg Qf benefit Ws, H04 Wcls' enlarged t0 cover ttits set up in SEZ by udditional sub-clause (c) in Section I0A (2J() 0f the Income Tax Act, [96], 3 If one reads section 10A(2) sub clause (1} and its sub-clauses, than I becaise clear that the undertaking in question should start its operation on OF after 0 particular date. There are 3 types 0f undertakings and hence 3 different dlale dre mentioned Thus these 3 condifions urg mWfually exclusive [e. tit in FTZ will not be an EQU and an EQU cannot be set up in SEZ. The beneflt Is available to all the three types of undertakings for & period 10 years or the specified end date whichever comes firsl, Firther; the sub-clguse co not pttl & restriction on cvailing of exemption 1,e, it does not specify that the exemption would nor be allowed 1o (say} am STP unit gfter 3]" March 2000 {" tkat Mere thc intention %f the lawmakers, then they would have specified 50 clearh: Similur instgnces cun be foltd Qt many_ 'places such &s sectiun 80} and 801A." 7 The contentiong ol the absessee were not accepted by the AO; The AO concluded that the scope of benefit provided under Section 10A was enlarged to an undertaking which has begun to manufacture Or produce articles or things or computer software iror A.Y. 2001-02 onwards in any Special Economic Zone, The assessee started production in a place other than SEZ in A.Y. 2005-06. Hence the assessee i8 not entitled for deduction Under Section IQA of the Act, 8 The a3sessee urged sinilar contentiong before the learned CIT(A): The asge8s0c &lso contended that the conclusion of the AO i8 erroneous There is no valid reason to deny benefit of deduction under Section 10A, The unit of the assessee having transferred to STPI authorities, the entire exports are supervised and regulated by the STIP authorities and the XX/ No_ 397/ Nay 2014 1;/ * {p Arrays Systens P Li '3 6 be dcnied benelil under Section 10A. The learned CITIA), asessep cannol No_ 71x datcd 09.08.2000 altcr consiclering the contention and circular The learned CITIA) passed the following ganted relicf to the abse35pe order: [ have considered submissions of counsel of the appellant and 7,0 perused the evidence on record The appellant is & company elgaged pe actevity %f evelopment of sojtware and %s export The Gppeliant is having urdertaking which is engaged in 100 % export of software. Thetundertaking of the appellant is registered with STPI Authorities and STPE Authorities have issued registration to the undertaking of 100%6 oriented unit The appellant has the appellant 05 export exported software developed and has been issued softeth deckitadre STPI Authorities. In the case of appellant the software fomn by in the past as well 0S during the developed has been exported previous year under consideration The above facts are not in dispute as is euident from assessment order: 7.1 The provisions of section 1OA provide for 100% exemption of income %f the undertaking which has begun % begins to manufacture Of1 or after 1/4/1994 in any software produce computer software axcnroology It also provides further condition &s regard t0 filing park Form No.S6-F. The software technology park hns Sf audit report int Explanation 2fvii} to Ttean pny park set up in Ybeen defined in software tectinology park scheme notified by accordance with GOemment of Indid; in the Ministry 0 Commerce and industries The appellant has also filed audit reporf as provided u/ s 1OA in Form Noc AO and copy of which is placed before me, For No.S6F 56-F before has started production/ manufacture of shows that the assessee The appellant has fulfilled the software from 02.02.2005 in the STP]. requisite conditions for income being exempt i 5 1OA of IT Act 1961. 7.2 The AO in his assessment order ar page No.3 has considered provisions %f section 1OA(2) of LT Act 1961 and concluded that the thederaning of ihe appellant having begun to manufacture O Produce after 02.02.2005. The AO observed that the Unit fasrtteted frtoductiote afier Uhe jirst day of April, 2001 as STPI Unit hnd stotted gad SEZ Unit, the assessee company failed to fulfill and not int @S condition laid down in Section 10A(2) (i} of the IT Act; 1961. Thus, the AO concluded that the exemption claimed by the assessee company u/ s IDA of the IT; Act needs to be denied as per the section, which to any undertoking which fulfills all the following conditions; applies namely: - Or begins to manufacture or produce (I It has begun articles %rs things or computer software during the previous year relevant to the assessment year- '2j fT/ #0 .397/#6!20]+ Alf $ RfArrys Sws -" 9PT[ 1232 or after the lst day o April; 1981, In (it commencing on any free trade zone; OT Commencing on or after the Ist day %f April, 1994, in (iii} electronic hardware technology park, or, as the cose any may be, Software Technology Fark; or after the 1st day of April 2001 tn (iv} Commenclng on any speclal economlc zone; the splittlng uP, or the b} It is not formed by of 4 bustness already in extstence; any reconstructlon, which 15 formed 0s a resuIt of the re- undertaklng establlshment; reconstruction or revival by the assessment Qf the business of any such undertakings &s i5 referred t 8n1 section 33B, Ir the clrcumstances and within the period specified In that selection; not formed by the transfer to Q new business of c} it t5 machinery or plant prevtously used for any purpose: provigtons of Explanation 1 and Explanation The Explanation 2 to sub-section (2} % section 80 1 shaUl @Ppey the purpose of clause (itl) % this sub-section 48 they for apply for the purposes 0f clause (14 of that sub-section the aforesaid provisions would indicate that 4 perusal of of word ar in between clause G & b and absence 0f word presenbe in between clause b & € %f the provisions has prompted the AO t0 Hake {he view that undertaking established in software technology not eligible for benefit W/ $ 10A of IT Act park after 1/4/2000 is 1961..e. Asstt Year starting from 1/4/2001} 10A Were sought to be amended of section by Provisions finance Bilf 2000 Thee Fimance Bill 2000 had proposed Gmendment i and same is reproduced herein below for ready the SeC 1QA reference; Extract from Finance Bill 2000 Amendment of Sec 10A 6_ In sec. 10A of the Income Tar Act,; clause [6} with effect from the Is 0) Fn sub-section (2) in day of April, 2001;- the wards, figures and letters On {iJ in sub-clause (a}, after Isi day of April 1981' the words, figures ard letters or after the 'but before the ]s1 day of April, 2001 shall be insented: ITA #o 397/Mng/zUA W/ $ R.k Artays Systems R L( 13P sub-clause {b) after the words figures and letters Ort Or filp ir the words figures ancl letters "hut cfter the ]st day of April 1994"; doy of April 200] shccll be inserted, before the 1# 'any ten the word "ten shall In sub-section {3} for the wuords (b} haue been substituted with be substituted and shall be deemed to effect from the Ist day of April 1999 bill would indicate that sub-clause (a) 7.3 Perusal of the Finance to be amended by Finance Bill and (b) of sec. 10A(2) Wete sought 'but before first day of April 2001" At the 2000 by adding the word porliomnent it WaS envisaged tht time of introducing the bill before industrial undertaking set up in STPI provisions granting benefit tc 14/2001. The Finance Act 2000, Were sought to be curtailed from in the bill, hewevougtad %ot carried Oul he Gmendnenttfor PrQAOsedndenakilg on the contrary, it extended the benefit of section 1QA t2 zone after 1/4/2000. The established under special econAcic 2000 Act was issued by Central Circular explaining fhe Finance and the relevant clause is Board of Direct Taxes on 09/08/2000 for ready reference: reproduced herein below 9/8/2000 Finance Act, 2000 @LLIS Circular No.798 dated provisions relating to Direct Tares: planatory Notes On '15.4 The conditions for the applicability of these provisions pre that the undertaking: produce articles Or things or (aJ begins to manufacture Or relevant to the software during the previous year computer mencing on OT after [s1 April, 1981 in any free assesstnent yeat com= on Or after the first day of April, 1994 in trade zone Or commencing technology park The electronic hrdware park O software any extended to new undertakings set up in any benefit has also been beginning on or after year relevant to an assessment year previqus the first day 0f April, 2001 in a Special Economic Zone: of aforesaid circular explaining the provisions of 7.4 The perusal conclusion that proposal in the Finance Act 2000 leads to clear bill to witharaw the benefit %f section 1OA to STPI units was finance the benefit of section IOA was extended to caried out and in fact economic zone, in addition to the undertakings set up in special park and free undertaking established under the software technologe drawn by AQ is, therefore , clearly trade zone: The conclusion unsustainable. The various undertaking set up in erroneous and is under section 10A(2Mi) pre respective designated areas 05 beroeidedru thersector conctdea be mutually exclusive and cannot be read i5 not a5 per AO 'AO had held that conmencement of eeakingallowabilty the purpose of of provisions of section 104f2) for 1961_ In View of bare perusal of u/ $ 1QA of IT: Act exemption TTA Nv. 397/Nag/ 20} 4 M}; # R.F. Arrays Systems P Lt provisions Gnd circular @xpluining Finance Act 2000, it is evident that objection of 40 1s unjustified rnd I; sustainable. nald tiat exemiption u/ $ 1OA ofIT Attt 1961 cannot be denied in the case of oppellant for the reason thai underlaking has begun to manufacture Or prodice computer sofiware @fler 01.04.2000. It is &lso seen thut Chapter 6, clause 6.12 0f Foreign Trade Policy 2004-09, issued by Ministry of Commerce & Industry, also specify that units set up under STP Scheme pre eligible for exempticn u/ $ 1OA Qf Income Tax Act; 1961_ This also fully supports the submission %f appellant It is seen that entire software exparted is supported by Softex declaration For issued by STPI Authorities; copies %f which are obtained and placed on record, STPI Authorities have issued certificate to the effect that entire software exported is in respect %f industrial undertaking which is holding approval of such authorities; The circular issued by the Boord clated 22-11-1994 also supports the submission %f the appellant: In view of above denial of benefit 0f Sec 10A for this reason is not justified: In any case the facts and evidence Ont record clearly make the appellant entitled for exemption of its income W/ $ IOA of IT Act The ratio as laid down by Honble Delhi High Court in the case pf CIT Vs: Jaya Parbolic Ltd, which has considered the decision of apex court in the case Goetze India Ltd Vs CIT reported at 284 ITR 323 supports the case of appellant; In view %f the above nothing adverse can be held against the appellant by the decision % Apex Court in the case of Gaetze India Ltd The decision endered by ITAT; "G" Bench Mumbai in the case of Mrs. Meena $ Banerjee Vs: ITO reported at 14 SOT 569 fully supports the case %f appellant Considering the totality of the facts and circumstances in the cose qf appellant; Ihold that appellant is eligible for benefit of exemptian W s 1OA of IT: Act 1961 in respect of its undertaking which i5 duly approved by STPI Authorities. The AO has no dispute with regard to quantum %f income in respecl of undertaking which is registered with STPI Authorities The disaliowance 0f deduction u/ $ 1OA assessed in respect of such industrial undertaking at Rs. 1,22,32,595/ _ is unjustified [hold that income the undertaking at Rs.1,22,32,595/_ is not chargeable to tax being exempt under section 1OA of the 1 T Act 1961. The addition made by AO is therefore directed to be deleted Hence these grounds are allowed 9 We have further noted that the Coordinale Bench of Nagpur Tribunal in the cabe M/s. Infospectrum India Pvt. Ltd, v8. ACIT in ITA No_ 82/Nag/2012 held that circular No_ 798 dated 09.08.2000 clarified that the exemption under Section 1OA is alsa available to those units which are set up in STPI a8 well: The order of the Tribunal was affirmed by the jurisdictional High Court in the case of CIT VS_ M/8, Infospectrum India Fvl, Ltd. in ITA No_ I10 of 2013 dated 11.07.2017. Considering the above 129 XTA N 30. Yog/ 2014 M/ 9 R}, Arroys ~"stems P Li 140 infirmily in the order passed by dinc'" uswion we do nor find any illegality or zhe learned CITIA) appeal filed by the Revenue is dismissed: 10, In the result, the court on 24u1 November, 2017, rder pronounced in the open - (Pawan Singh) (P.K . Bansal) Judicial Member Vice President Dated: 24th November, 2017 Nagpuf, Copute: 1 The Appellant 2 The Respondent 3 , The CITIA} -I, Nagpur 4, The CIT - [ Nagpur 5, The DR, Bench, ITAT, Nagpur 014= O4 Hle Order 1 {/ / S1s Pnmt #edlstrar ITAT, Aaupur Ircoma Tax Appllai? Tritun:l "r? #= Nagpif Ac : n,p.