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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA & PAWAN SINGH
आदेश / O R D E R
PER PAWAN SINGH, JUDICIAL MEMBER
This appeal under Section 253 of Income-tax is directed by the assessee against the order of CIT(A)-20, Mumbai dated 12.11.2012 for assessment year 2009-10, the assessee raised the following grounds of appeal:-
“The Appellant submits the following grounds, which are without prejudice to one another: 1 ITA No. 1399/M/2013 Netmagic IT Services 1. Re Disallowance of claim of exemption u/s. 10A Rs.1,68,06,317/-: 1.1 On the facts and in the circumstances of the case and in law, the learned Commissioner of income Tax (Appeals) [hereinafter referred to as ‘the CIT (A)’] erred in disallowing deduction u/s 10A by relying on the observations of the then Ld. CIT(A) order for the AY 2007-2008 dated 15th October 2010 as order in earlier year was passed by the then CIT(A) without giving an opportunity to the Appellant to present its case on the aforementioned issue and hence decisions of various judicial authorities, deciding the said issue in favour of the Assessee were not considered. 1.2 The CIT(A) grossly erred in stating that the Appellant has not begun to manufacture or produce computer software in any Software Technology Park of India and hence provisions of S. 10A(2) are not compiled with. 1.3 The CIT(A) grossly erred in not appreciating that the deduction u/s. 10A attaches to the undertaking as claimed by the Appellant. The CIT(A) also erred in holding that as per S. 10A(7A), transfer of eligible undertaking only in cases of amalgamation and demerger are entitled to the deduction u/s. 10A.
2. The Appellant craves leave to add to, alter, amend or delete any ground of appeal
.”
2. At the outset of the hearing the ld. A.R. that the assessee argued that the grounds of appeal raised in the present appeal are entirely covered in his favour by the decision of Tribunal in assessee own for AY- 2007-08. The ld AR for assessee argued that the ld. CIT(A) in the impugned order followed the order of ld CIT(A) for assessment year 2007-08. The ld. AR further argued the order that the ld. CIT(A) assessment year 2007- 08 has been set aside by the Tribunal in dated 06.04.2016 and the matter was restored to the file ofthe Assessing Officer. On the other hand ld. A.R for the revenue not disputed the decision of Tribunal in the earlier years however ld. D.R. submitted that he has no objection, if the ground of appeal raised in the present appeal is also restored to the file of the Assessing officer with the similar directions.
3. We have considered the rival submissions of the ld representatives of the parties and with their assistance perused the order of Tribunal for A.Y. 2007-08 in dated 16.04.2016. The coordinate bench of the Tribunal passes the following order. 2 “6. We heard the rival contentions and perused the record. We have noticed that the AO has rejected the claim on the reasoning that it was a case of reconstruction of business. The said reasoning has been set aside by Ld. CIT(A) and the revenue has accepted the order of Ld. CIT(A) in that regard However, the Ld. CIT(A) has confirmed the disallowance on certain new grounds.
The Ld. CIT(A) has taken the view that the parent company itself shouldhave set up the undertaking in a software technology park as an eligible undertaking (eligible fur deduction u/s 10A of the Act) and should have transferred an eligible undertaking. In that case, the assessee shall continue to enjoy the benefit given u/s 10A of the Act. for the remaining unexpired period eligible for deduction from the date of setting up of the undertaking. We notice that the said reasoning given by Ld. CIT(A) is against the Board circular no. 1/2005 dated 06-01-2003). for the sake of convenience, we extract below the relevant circular:-
"Certain clarification regarding Tax holiday under section 10B of the Income-tax Act to 100% Export Oriented Undertaking CIRCULAR NO, 1/2005, DATED 6-1-2005 1. Section 10B of the Income-tax Act provides for 100% deduction of profits derived by a hundred per cent Export Oriented undertaking from export of articles or things or computer software manufactured or produced by it. The deduction is available for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software. However, no deduction under section 10B is available after assessment year 2009-10.
The deduction under section 10B is available to an undertaking which fulfils all the following conditions:- (i) it manufactures or produces any article or thing or computer software; (ii) it is not formed by the splitting up, or the reconstruction, or a business already in existence except in the circumstances specified under Section 33B of the IT Act. (iii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Representations have been received from various quarters as to whether an undertaking set up in Domestic Tariff Areas which is subsequently approved as 100% EOU by the Board appointed by the Central Government in exercise of powers conferred under section 14 of the Industries (Development and Regulation) Act, 1951, is eligible for deduction under section. 10B of the Income- tax Act.
The matter has been examined and it is hereby clarified that an undertaking set up in Domestic TariffArea (DTA) and deriving profit from export of articles or things or computer software manufactured or produced by it, which is subsequently converted into a EOU, shall be eligible for deduction under section 10B of the IT Act, on getting approval as 100% export oriented undertaking. In such a case, the deduction shall be available only from the year in which it has got the approval as 100% EOU and shall be available3 only 3 for the remaining period of ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as a DTA unit. Further, in the year or approval, the deduction shall be restricted to the profits derived from exports from and after the date of approval of the DTA unit as 100% EOU. Moreover, the deduction to such units in any case will not be available after assessment year 2009-10.
To clarify the above position, certain illustrations are given as under, (i) Undertaking ‘A’ is set up in Domestic Tariff Area and starts manufacture or production of computer software in Financial Year 1999-2000 relevant toassessment year 2000-01. It gets approval as 100% EOU on 10th September, 2004 in the financial year 2004-05 relevant to assessment year 2005-06. Accordingly, it shall be eligible for deduction under Section 10B from assessment year 2005-06 i.e., the year in which it fulfils the basic condition of being a 100% EOU. Further, the deduction shall be available only for the remaining period of ten years i.e. from assessment year 2005-06 to assessment year 2009-10. This deduction under Section 10B for assessment year 2005-06 shall be restricted to the profits derived from exports, from and after the date of approval of the DTA unit as 100% EOU. (ii) Undertaking ‘B’ set up in Domestic Tariff Area, begins to manufacture or produce computer software in financial year 1996-97 relevant to assessment year 1997-98. It gets approved as 100% EOU in financial year 2007-08 relevant to assessment year 2008-09. No deduction under Section 10B shall be admissible to undertaking B as the period of 10 years expires in financial year 2005-06 relevant to assessment year 2006-07, prior to its approval as 100% EOU. (iii) Undertaking ‘C’ is set up in Domestic Tariff Area in the Financial year 2000-01 relevant to assessment year 2001-02 and engaged in the business of providing computer related services, other than those notified by the Board for the purposes of section 10B. In financial year 2002-03, it acquires more than 20% of old plant and machinery and starts manufacturing computer software. It also gets approval as 100% EOU in financial year 2002-03. Undertaking ‘C’ shall not be eligible for deduction under Section 10B, as there has been transfer of old plant and machinery. (iv) Undertaking ‘D’ is set up and starts providing computer software in financial year 2003-04 relevant to assessment year 2004-05. It gets approval as 100% EOU in financial year 2006- 07 relevant to assessment year 2007-08. It shall be eligible for deduction under Section 10B form assessment year 2007-08. However, the deduction shall not be available after assessment year 2009-10. (v) Undertaking ‘E’ is set up and starts producing computer software prior to 31.03.1994. It gets approval as 100% EOU in financial year 2004-05 relevant to assessment year 2005-06. Undertaking ‘E’ shall not be eligible for deduction under Section 10B as the period of deduction of 10 years expires prior to assessment year 2005-06.” A perusal of various illustrations given in the Circular would show that the Board has clarified that the undertaking need not register itself as 100% EOU in the year in which it is set up. If it is so registered in any of the subsequentyears also, then the deduction u/s 10B shall be available to the remainingunexpired period prescribed in that section. In our view, the Circular, even though given for sec. 10B of the Act, yet it can be equally applied to the deduction claimed u/s 10A of the Act, since the objective of sec. 10A and sec. l0B are identical. Hence, we are unable to agree with the reasoning given by the ld. CIT(A) that the parent company should have 4 Netmagic IT Services transferred an eligible undertaking to the assessee. After acquiring the undertaking in a slump sale as a going concern, the assessee herein has registered the same under Software Technology Park scheme. Hence, as stated in the Board Circular, referred above, the assessee should be eligible to claim deduction u/s 10A inrespect of the remaining years of the prescribed period calculated from the date of original set up of the undertaking.
The next reasoning given by Ld. CIT(A) is that the assessee would havebeen eligible to get deduction if the transfer had taken place as contemplated in sec. 10A(7) (sic. 10A (7A)) of the Act. The said section reads as under:- “Where any undertaking of an Indian Company which is entitled to the deduction under this section is transferred before expiry of the period specified in this section, to another Indian company in a Scheme of amalgamation or demerger:- (a) No deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b) The provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place.” In our considered view, the above said section only clarifies as to who Should claim deduction u/s. 10A of the Act if an eligible undertaking is transferred by way of amalgamation or demerger. In the instant case, the transfer has taken place in a slump sale as a going concern and not under a scheme of amalgamation or demerger. Further, it is also pertinent to note that sec. 10A contained provisions of sub sec. 9 which provided that the deduction u/s 10A shall not be allowed if the ownership or beneficial interest is transferred by anymeans. The Finance Act, 2003 has omitted sub, Sec. (9) w.e.f. 1.4.2004, meaning thereby, the transfer of ownership or beneficial interest is not prohibited after 1.4.2004. Hence, we are of the opinion that the view taken by the Ld. CIT(A) that the transfer of an eligible undertaking should take place only by way of amalgamation or demerger Netmagic IT Services and then only the deduction u/s 10A shall be continued to be given to the succeeding company, is not in accordance with the provisions of the Act.
Before us, the Id. A.R placed reliance on host of case laws. Since we have placed reliance on a Circular issued by CBDT as well as the provisions of the Act, we do not find it necessary to discuss about them.
In view of the foregoing discussions, we are of the view that the assessee shall be eligible to claim deduction u/s 10A of the Act for the unexpired period of the eligible period. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to allow the deduction subject to the assessee satisfying other conditions prescribed u /s 10A of the Act.”